Provident Fund To Be Split Into 2 Accounts - Taxable And Non-Taxable

The Centre has notified new income tax rules under which the existing provident fund (PF) accounts will be split into two separate accounts, to enable the government to tax PF income generating from employee contributions which exceed Rs 2.5 lakh annually.

Central Board of Direct Taxes (CBDT) has issued the rules and separate accounts within the PF account shall be maintained.

Subsequently, all existing employees provident fund (EPF) accounts will be divided into taxable and non-taxable contribution accounts. 

The non-taxable accounts will include their closing account as it stood on March 31, 2021.

The Finance Ministry had notified the new rules on August 31 and subsequently the Income Tax department too was informed.  

According to official sources, these rules are likely to come into effect from the next financial year, i.e. from April 1, 2022 onwards. 

In order to implement the new tax on PF income from employees' contributions exceeding Rs 2.5 lakh annually, a new Section 9D in the income tax rules has been included.

To calculate the taxable interest, two separate accounts will have to be maintained within the existing provident fund account during the recently concluded financial year as well as all the preceding years, to assess the taxable as well as the non-taxable contribution made by a person.