EPF threshold limit increase: Will you benefit?

The Finance Bill has been cleared in Parliament and many amendments have also been made. A big development has now taken place with the Finance Minister raising the limit for tax exemption on interest earned on provident fund contribution to Rs 5 lakh from Rs 2.5 lakh proposed in the Budget.

The Finance Minister has increased this limit while presenting the Finance Bill. However, this exemption will be available only to employees who have their own contribution to the provident fund. The new rule will come into effect from April 1, 2021.

There are very few people who deposit Rs 5 lakh annually in Provident Fund in a private job. A person whose basic salary will be up to Rs 41.66 lakh will benefit from this decision. If you deposit this amount in your account, then there will be no tax on its interest. But this will only happen if there is no contribution from the employer.

If the annual contribution to EPF account is more than Rs 5 lakh, then the interest of additional contribution will be taxed. This means that whose basic is Rs 3,47,216, annual contribution will be less than Rs 5 lakh.

For instance, if a member deposits Rs 12 lakh annually in his provident fund account, then the interest of Rs 7 lakhwill be taxed. The total interest on Rs 7 lakh will be Rs 59,600 (according to 8.5% interest). According to this tax rate of 30%, the interest calculated on this comes to around Rs 18,450.