Budget 2021 had previously proposed that interest will be taxable where the employee’s annual contribution to the provident fund (PF) exceeds Rs. 2.5 lakh.
In the latest development, the threshold limit has been revised to Rs. 5 lakh and is applicable where the fund doesn’t constitute employer’s contribution. These provisions will be applicable from 1 Apr 2021.
Speaking to Sadashiv Phene a Mumbai-based MFD and Sandeep Sehgal, Director - Tax & Regulatory of M/s Ashok Maheshwary & Associates, it is understood that further clarity on the subject matter including the tax treatment is currently awaited.
Sadashiv shared that these regulations bear an implication for the elite salaried employees who form a minuscule portion of the total number of subscribers. He is of the view that once the threshold limit exceeds, the interest on the entire contribution will be taxable.
On the contrary, Sandeep believes that interest on the contribution over and above the threshold limits will be taxable. This limit is assumed to be Rs 2.5 lakh which also includes employer’s contribution, whereas, it is considered to be Rs. 5 lakh where there is no employer contribution. Sandeep finds the revised regulations in the interest of the small as well as mid tax payers.
The interest income will be taxable as ‘Income from other sources’ at the applicable slab rate.
