On March 12, 2022, the EPFO ​​cut interest on PF deposits for 2021-22 to a more than four-decade low of 8.1 percent from the previous rate of 8.5 percent.

After the Central Board of Direct Taxes (CBDT) – through its notice dated August 31, 2021 – the interest on the Provident Fund (PF) contributions of more than Rs 2.5 lakh made by the employees – wherever the employer appropriate contributions – in a fiscal year taxable beginning April 1, 2022, the Central Board of Trustees of the Employee’s Provident Fund Organization (EPFO) on March 12, 2022 lowered the interest on PF deposits for 2021-22 to a more than four decades low level of 8.1 per cent from the previous rate of 8.5 percent.

The double whammy has made it unappealing to the high-salary subscribers who pay large voluntary contributions to PF to take a significant portion of their paychecks tax-free.

Under the Finance Act 2021, any interest as far as it relates to the amount of PF contribution of more than Rs 2.5 lakh made by employees would be taxed.

However, government employees who contribute to the General Provident Fund (GPF) have some relief because in cases where only the employee pays PF contributions, the threshold of Rs 250,000 would be raised to Rs 5,000,000.

But the lower interest rate of 7.1 percent on the GPF contribution has put a damper on officials, as even after the recent rate cut, the EPF interest rate remains relatively high at 8.1 percent.

After the contribution above the threshold has been made taxable, duplicate accounts are now maintained within a Provident Fund account – one with a taxable component and the other with a non-taxable component.

So, how can the employees who contribute too much save tax?

In order to save tax, such employees should research other tax-efficient arrangements. Some such schemes are –

PPF

Since the threshold limit applies separately to individual PF schemes and not to the combined contributions to different schemes, such employees can contribute up to Rs 1.5 lakh to the Public Provident Fund (PPF) to make up the excess contribution to EPF/CPF/GPF to reduce the interest on which interest is taxed.

ULIP

With full tax exemption, the Unit Linked Insurance Plan (ULIP) offered by insurance companies is also a viable alternative for the employees who face tax deductions on interest on excess PF contributions.

ELSS

Equity Linked Saving Scheme (ELSS) is another tax-saving tool that can deliver superior tax-efficient returns in the long run. Aside from the ELSS, the employees facing tax cuts on their excess PF contributions can also invest in other Mutual Fund (MF) plans – particularly through SIP for equity-oriented plans – for long-term investments to achieve a higher tax benefit. to achieve returns.


This post After Tax on Provident Fund, Employees Face Rate Cuts: What Should You Do? was original published at “https://www.financialexpress.com/money/after-tax-on-provident-fund-employees-face-rate-cut-what-should-you-do/2462824/”

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