All existing PF accounts will be divided into taxable and non-taxable contribution accounts.
New Delhi: From April 1, existing provident fund (PF) accounts are likely to be divided into two parts. In September last year, the government had notified new income tax (I-T) rules, under which the PF accounts will be split into two. The step will allow the Centre to tax PF income on employee contributions of over Rs 2.5 lakh annually.
With the new set of rules, the Centre aims to prevent high earning people from taking advantage of government welfare schemes.
Here are the top five takeaways:
1) All existing PF accounts will be divided into taxable and non-taxable contribution accounts.
2) The non-taxable accounts will include their closing account as it stood on March 31, 2021, the Central Board of Direct Taxes (CBDT) had said. The CBDT frames policy for the I-T department.
3) According to official sources, the rules may come into effect from the next financial year, i.e. from April 1, 2022, onwards.
4) In order to implement the new tax on PF income from employees’ contributions exceeding Rs 2.5 lakh per annum, a new Section 9D has been included under the I-T rules.
5) For taxable interest calculation, two separate accounts will be maintained within the existing PF account during the recently concluded financial year as well as all the preceding years, to assess the taxable as well as the non-taxable contribution made by a person.