Finance Act 2021 made an amendment in sub-sections (11) and (12) of section 10 of the Income Tax Act to provide that interest accrued on a provident fund account of any person to the extent it relates to the contribution made by the employee over and above Rs. 2,50,000 (Rs. 5,00,000 in case where employer is not contributing to such EPF account – typically in case of Government employees) will be subject to tax in the year of accrual. (for detail,
https://taxguru.in/income-tax/taxability-interest-p-f-contribution.html
Recently, CBDT vide its notification dated 31 August 2021, prescribed the method for computing the amount of such taxable interest which is as follows:-
– Two separate PF accounts shall be required to be maintained starting from FY 2021-22 for determining taxable contribution and non-taxable contribution made by a person.
– Taxable interest will be the interest accrued during the previous year in the taxable contribution account.
Where,
Taxable contribution will be an aggregate of the following:-
a) contribution made in the PF account starting FY 2021-22 over and above Rs. 2,50,000/ Rs. 5,00,000 during year; and
(b) interest accrued on the above
Less: any withdrawals from this account.
Non-Taxable contribution will be an aggregate of the following:-
a) closing balance in the account as on 31st day of March 2021 and interest accrued in such amount;
b) contribution not included in the taxable contribution account and interest accrued on such amount.
Less: any withdrawals from this account.
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