Tax Applicable on EPF Contribution above Rs 2.5 lakh

FM Nirmala Sitharaman has proposed removing of tax exemption on the curiosity earnings earned on the worker’s annual contribution above Rs 2.5 lakh to varied provident funds. The step is introduced to place a verify on tax leak; nevertheless it has additionally rejigged the financial savings and funding portfolio of the salaried people.

That’s, contributions to EPF above the capped restrict within the subsequent Monetary Yr ranging from April 1, 2021 can be taxed as per your IT slab. The transfer will largely have an effect on the Voluntary Provident Fund (VPF) contributions of staff which loved Exempt, Exempt & Exempt Standing until now.

In different phrases, a salaried staff’ statutory or voluntary contribution to the provident fund over and above Rs 2.5 lakh per yr will appeal to a tax on the curiosity earned. The tax is relevant solely on the “extra contribution” over the restrict. It doesn’t apply to employer’s contribution. Until date, EPF was a well-liked tax saving & excessive yielding retirement saving device.

What’s EPF Scheme?

As per the EPF Act, each worker and employer are required to make a set contribution at 12% of the wage for retirement. The staff are allowed to voluntarily contribute greater than this quantity, with no ceiling to VPF. Thus, excessive salaried staff loved tax-free curiosity.

After Price range 21, will capping on EPF change saving & funding sample?

Sure. To some extent this transfer could change the funding sample of excessive wage earners. NPS can be a extra preferable retirement device than EPF. Massive contributions to VPF turn out to be unattractive.

Aside from EPF, the tax payers get pleasure from EEE standing on contribution to public provident fund (PPF) and Tier II NPS beneath Part 80C for deduction as much as Rs. 1.5 Lakh. Contribution to NPS is totally tax-free and the complete corpus escapes tax at maturity, together with 40% annuity.

Additionally Learn: Price range 2021: ITR Submitting Exemption for Senior Residents Above 75 yrs