Center notifies rules for bifurcation of provident fund into two accounts – taxable and non-taxable

The Finance Ministry has notified rules for computation of taxable interest on employee contribution to provident fund exceeding Rs 2.5 lakh per annum. In her budget for 2021-22, Sitharaman had capped the tax-free interest earned on provident fund contributions by employees and employers to a maximum of Rs 2.5 lakh a year, to enable higher earners to park their surpluses. to be prevented. Common man’s retirement fund.

The Central Board of Direct Taxes (CBDT) on Wednesday notified the rules for computation of taxable interest in provident funds. It said that for the purpose of computation, separate accounts within the Provident Fund account for taxable and non-taxable contributions made by an individual would be started from 2021-22.

Nangia & Co LLP partner Shailesh Kumar said that the notification issued by CBDT has finally removed the ambiguity that had arisen with the introduction of taxation of interest on provident funds with contributions above the specified limit. Rule 9D incorporated in the Income Tax Rules, 1962 has specified that segregated accounts shall be maintained within PF accounts by segregating taxable and non-taxable contributions to PF along with interest.