Provident Fund (PF) Accounts
The government has decided to split existing Provident Fund (PF) accounts into two separate accounts in order to operationalise the new tax on PF income arising out of employee contributions exceeding ₹2.5 lakh a year.
- The Finance Ministry notified new Income Tax rules to this effect, but experts said this could prove to be an administrative nightmare for the Employees’ Provident Fund Organisation (EPFO) and a few thousand employers who manage their workers’ EPF savings in-house.
- For the purpose of calculation of taxable interest, separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person,” as per the Income-Tax (25th Amendment) Rules, 2021.
- Accordingly, all EPF accounts will have to be bifurcated into a taxable and non-taxable contribution account, with the latter including their closing account balance as on March 31, 2021, any contributions made thereafter that are “not included in the taxable contribution account” and annual interest accrued on these two components.
- The EPFO had 24.77 crore members with EPF accounts, of which 14.36 crore members had been allotted Unique Account Numbers (UAN) as of March 31, 2020.
- About 5 crore of these members were active contributors into their EPF accounts during 2019-20.