Individuals whose provident fund contribution is ₹ 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. While presenting Budget 2021, 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 ₹ 2.5 lakh.”
Currently, interest earned on provident fund is exempted from income tax.
“EPFO is for welfare of workers and workers will not be affected by this move. It is only for big ticket money which comes into EPFO which has tax benefit and also assured 8 per cent return,” Ms Sitharaman said while addressing the post-budget press conference.
“You find huge amounts, at times to the extent of ₹ 1 crore each month for somebody who puts ₹ 1 crore each month what would be his salary for him to get tax exemption and an assured return. We thought we are not reducing workers right but at the same time getting tax exemption and also getting 8 per cent rate of interest for somebody who puts ₹ 1 crore per month into the account we thought may be its not right and therefore we have put that ceiling,” Ms Sitharaman said.
“The number of people who contribute the sum we have indicated is less than 1 per cent of total contributors in the EPFO,” TV Somanathan, expenditure secretary added.
Retirement fund body EPFO credited 8.5 per cent rate of interest on employees’ provident fund (EPF) for 2019-20 to its six crore members.