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New income tax rules for GPF: After the beginning of new financial year 2022-23, various income tax norms announced in the union budget 2022 have become applicable now. So, it is important for a taxpayer to know the new changes in regard to income tax rule, which has become applicable now. Taxation on Provident Fund (PF) contributions above 2.50 Lakh is one of them. After rationalization of provident fund announced in budget 2021, the Central Board of Direct Taxes (CBDT) has inserted rule 9D of Income Tax Rules, 1962 in FY22. Under this rule, each EPFO subscriber will have two PF/EPF account where the second account will have PF contribution beyond the threshold limit.

Speaking on the new income tax rules for GPF or General Provident Fund; SEBI registered tax and investment expert Jitendra Solanki said, "In budget 2021, the union finance minister had announced to rationalization provident fund by taxing the PF interest earned beyond 2.50 lakh contribution in single financial year. To ensure implementation of this announcement and smooth calculation of the PF interest earned by an EPFO subscriber, CBDT inserted rule 9 of Income Tax Rules, 1962 in FY2021-22. As per this rule, every EPFO subscriber will have two EPF or PF account where PF contribution beyond 2.50 lakh in single financial year will be deposited in second PF or EPF account. So, interest earned in EPF/PF-1 account will be free from any taxation while interest earned in PF/EPF-2 account will be taxable." Solanki said that two EPF or PF account system has become applicable from the new financial year. However, classification of taxable and non-taxable PF account will get in place from 1st April 2021.

Explaining the new income tax rules for GPF; Archit Gupta, Founder and CEO at Clear said, "The CBDT has notified that organisations need to maintain two separate PF accounts. One of the accounts will be for taxable contributions, while the other will be for non-taxable contributions starting 1st April 2021. The interest accrued on the contributions deposited in the taxable account in the EPF will be taxed."

On how new income tax rules on provident fund contribution will work, Archit Gupta of Clear said, "The interest earned on the employee’s contribution to the provident fund account will be taxed if the contribution amount in a financial year exceeds 2.5 lakh. If there is no employer contribution in the provident fund account, the threshold will be 5 lakh a year."

For example, a salaried EPFO subscriber makes a contribution of 1.5 lakh in EPF and 1.5 lakh in VPF accounts during the FY 2021-22. The opening balance of the PF account as of 1st April 2021 is 20 lakh. The total contribution to the provident fund account during the FY 2021-22 is 3 lakh. Hence, 2.5 lakh EPF contribution will be credited to the non-taxable account, and 50,000 will be credited to the taxable account. The balance in the non-taxable account as of 31st March 2022 shall be 22.5 lakh (the opening balance as of 1st April 2021 is non-taxable), and in the taxable account shall be 50,000. Therefore, the interest of 8.5 per cent applicable for FY 2021-22 on 50,000 shall be taxable into the hands of EPFO subscriber.

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Asit Manohar

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