Provident Fund Exceeding Rs 2.5 Lakh To Stop Earning Tax Free Interest From April

Provident fund subscribers who invest more than Rs 2.5 lakh in their provident fund accounts in a year will not be able to earn the mandated 8.5 per cent tax free return from next month. Interest earned on amount exceeding Rs 2.5 lakh will be taxable as per the Budget announcements for next financial year which starts from April 1.

Individuals whose provident fund contribution is Rs 2.5 lakh or more in a financial year, will not be able to seek tax exemption on the interest earned from the next financial year, Ms Sitharaman said. "In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees' contribution to various provident funds to the annual contribution of Rs 2.5 lakh."

The government has imposed tax on interest earned on provident fund after it found huge amounts of contributions made by some individuals in their PF accounts.

One of the highest contributors has more than Rs 103 crore in his account, and two second highest ones have more than Rs 86 crore each, the government had said, clarifying its decision to tax PF contributions. The government's decision to tax interest earned on Employees' Provident Fund of Rs 2.5 lakh and above a year was based on the principle of equity among the contributors and aimed at ensuring that high net-worth individuals (HNI) who park huge sums of more than a crore of rupees per month do not earn at the cost of other honest taxpayers' money.

The top 20 HNIs have about Rs 825 crore in their accounts and leading 100 HNI contributors have more than Rs 2,000 crore, the government said, without revealing the names of these high net-worth individuals.