New rules for PF deduction and contribution - 2022

In this blog, we will discuss the new rules for PF deduction and contribution, and their impact on employers and employees.

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EPFO ( Employee Provident Fund Organisation) has reported that EPFO is making some new changes in the rules of the EPF. The current PF account will be divided into two parts from April 1, 2022. And In this case of a contribution in more of the limits of the employee, the interest income will be taxable.

For all the government and corporate sector employees, the income tax department will start imposing taxes on PF returns from April 1, 2022. The CBDT (Central Board of Direct Tax) will start to execute the income tax 25th Amendment rule in April, which will apply for both the EPF and GPF (General Provident Fund) under the purview of this rule.

Finance Minister Nirmala Sitharaman during her budget 2022 speech mentioned that the interest on contribution towards the EPF account (Provident Fund) of over Rs 2.5 lakh p.a will be taxable from 1 April 2022. On the other hand for government employees, the limit of tax-free contribution to GPF is Rs 5 Lakh P.a.

As per the Central Board of Direct Tax, the tax will be levied on the salary of employees, if a corporate sector employee or a government employee was contributing above the limit, then the interest income will be assessed as income, and then the income tax will be deducted, and it deduction will come under the form 16.

Till FY22, all contributions made in the PF account so far, including contributions of up to Rs 2.5 lakhs made in FY22, will become in one account where no tax will be imposed as has been the practice with the PF, where contribution, interest, and withdrawal, all are tax-free. But another PF account will be created for each subscriber in FY22, where the contributions of over Rs 2.5 lakh made in the current year and following years will be placed. That will be a taxable account means interest earned on this contribution will be subject to applicable tax.

Facts of New PF Rules:

1. The present PF accounts will be divided into taxable and non-taxable contribution accounts.
2. Non-taxable accounts will also include their closing account as it is March 31, 2021.
3. New PF rules will be implemented from the next financial year on April 1, 2022.
4. A new section 9D has been included under IT rules to introduce the new tax on PF (Provident Fund) income from employee contributions above Rs. 2.5 lakhs per annum.
5. These two separate accounts will also be created in the existing PF account for the calculation of taxable interest.

How does it impact employers and companies?

It will impact the employers and companies in terms of:

• As you know, EPF is managed by the EPFO and General Provident Fund (GPF), where government employees are saving for retirement.
• Many big companies in India handle the retirement savings of their employees through ‘’EPF Trust’’ to ensure that their employees don’t have to run behind any process to avail these savings at the time of retirement/need.
• Employers will have to create a separate return for the employee with more than 5L contribution and update to the dept.

How does it impact employees?

The new rules for PF deduction are impacting the employees are:

• • The annual contribution limit will be Rs 2.5 lakh will apply for EPF members when PF and GPF where there is no contribution from the employer, the being has been set at Rs 5 lakh.
  • EPF accounts are mandatory for employees earning up to Rs 15,000 in a month in companies with over 20 workers, with 12% of the basic salary deducted as employee’s contribution and another remitted by the employers.
  • This step will impact the high-income earners and HNIs (High Net-worth Individuals). Any person who earns more than Rs 20.83 lakh a year will attract his interest on EPF contribution access tax.
  • And the salary employees who use the Voluntary Provident Fund to invest more than the compulsory 12% of basic salary will also be impacted.

  So, we have come to the end of our discussion of new rules for PF deduction and its impacts.

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