The Central Board of Direct Taxes (CBDT) recently announced that employees who contribute over Rs 2.5 lakhs in Employee Provident Fund (EPF) in a financial year are required to maintain two separate accounts from the ongoing financial year.
The guideline was issued by the CBDT after Budget 2021-22 made space for a new provision making interest on annual PF contributions of more than Rs 2.5 lakh taxable. Now, an individual will have to maintain two separate accounts – taxable and non-taxable which will make it easier for the income tax department to calculate interest on such financial investment instruments.
The notification issued by the CBDT states that the new rule will be implemented from the financial year 2021-22. However, for those EPFO subscribers who don’t receive any contributions from the employers’ side, the limit on interest on PF investments for them is set at Rs 5 lakh.
With this rule in place, one should know that they don’t have to do anything to open a new account. If your contribution is above Rs 2.5 lakhs then the EPFO will open the account automatically.
Notably, the interest on tax will be calculated after deducting the withdrawals made in a particular financial year.