Two days later, there is a significant change in the rules for PF from April 1. In fact, in the General Budget 2021, there was an opportunity to set a tax-exemption limit on interest on the Employee Futures Fund (EPF) and the Volunteer Futures Fund (VPF), which offers future fund contributions of more than Rs 2.5 lakh a year. Interest is now taxed at the normal rate. This applies only to employee contributions, not employee (company) contributions. In fact, employees must save the tax by depositing more money in the PF because the interest of the PF is outside the scope of tax.

High income salaries affect employees
Under existing provisions, the interest of the Employees Provident Fund, the Voluntary Futures Fund and the Exempt Futures Fund Trusts are exempt from tax, no matter how high the PF contribution is. This new provision of the budget has a direct impact on people with higher income salaries who use the voluntary futures fund for tax-free interest. Under the EPF Act, employers and employees’ contribution (company contribution) is set at 12% of salary. However, employees can voluntarily contribute more than this amount to the Voluntary Future Fund (VPF). There is no higher limit for VPF contribution.

Full interest discount benefit with no limit
Govind Singh, a chartered accountant in Delhi, said that some employees give higher amounts to future funds (accredited futures fund and central government funds like EPF) and take advantage of the discount on full interest without any limit. In the Budget proposal, the Finance Minister has given a discount of Rs 2.5 lakh on interest on PF contribution in one year. The new limit applies to contributions made on or after April 1, 2021. The move affects less than 1 percent of employees’ future funding.

Up to 5 lakhs of investment in PF is tax free, benefiting these workers