Higher EPF contribution to be taxable from April 1, but…?

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EPFO extended social security benefits to the subscribers of J&K and Ladakh
The social security coverage of establishments under EPFO in J&K and Ladakh has increased by 38%, from 3458 on 31st October, 2019 to 4754 on 31st January, 2021.

Higher EPF contribution to be taxable from April 1, but…?

Union Finance minister Nirmala Sitharaman had announced in the Budget 2021-22 that interest earned on individual PF contributions over Rs 2.5 lakh in a financial year will be taxable from the next financial year.

The move is set to impact people with high incomes and high contributions to EPF, but the government has argued that it will affect less than 1% of contributors.

The budget 2020-21 has proposed to put a cap on tax exemption on the employer’s contribution under Employees’ Provident Fund (EPF), National Pension System (NPS), and superannuation fund. Finance Minister proposed a cumulative upper ceiling of Rs 7.5 lakh for these three investments which offers tax benefits.

The proposed amendment will be effective from 1 April 2021, the combined upper limit of Rs. 7.5 lakh in respect of employer’s contribution in a year to NPS, superannuation fund and recognized provident fund and any excess contribution will be taxable.

However, according to media reports, recently, Finance Minister hints at the review of tax limit and said there is no intent to discourage higher income earners from saving with the Employees Provident Fund (EPF).

Here are also some other alternative investment options that stay out of the tax on EPF interest-

  • Equity Linked Saving Scheme (ELSS)
  • Public Provident Fund (PPF)
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