Interest on Employee Contribution to PF Above ₹2.5 lakh per annum to be Taxed

Interest on Employee Contribution to PF Above ₹2.5 lakh per annum to be Taxed


One of the Budget 2021 proposals has been to restrict the tax exemption for interest income earned on employees’ contribution to the provident fund of high-income employees.


The Budget document stated that to rationalise tax exemption for high-income employees' income, the government has proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of ₹2.5 lakh. The restriction is applicable only for the contribution made on or after April 1, 2021.


Under the EPF Act, employee and employer contribution is set at 12 per cent of the salary. But, one can voluntarily contribute more than this amount to VPF. Exempted from the tax is the EPF withdrawal after 5 years of continuous service.


Bhaskar Majumdar, Managing Partner, Unicorn India Ventures, "The Union Budget 2021 delivered on many parameters like healthcare, infrastructure, education, banking reforms but the distant cousin — startups — were more or less left out of the key announcements. The tax holiday and LTCG exemption are definitive positive initiatives but their impact remains limited to DPIIT recognised startups (tax break exemption). The funding in the startup sectors currently comes from foreign funds, so while LTCG will give  boost to domestic money finding its way into the sector, the numbers still won't match up to the scale where impact can be made. However, we can't ignore the fact that the govt has rolled out many positive initiatives outside the Budget like Rs 1,000 crore seed fund announced recently and even setting up OPC will give a boost to new startups getting launched. It will also give them credibility in raising seed or angel money."



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