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Tax treatment of interest income on PF contributions

Ajay Kumar Maggidi , Last updated: 13 September 2021  
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CBDT notified rules for the manner of determining taxable interest on provident fund contributions.

Key details of recent income tax notification on the income tax treatment of interest accrued from PF contributions are discussed below.

Brief on Notification

  • In Budget 2021, section 10(11) & 10(12) of Income-tax act has been amended through Finance Act, 2021
  • To that effect, CBDT issued a notification 95/2021
  • Rule 9D has been inserted &
  • Notified rules for the calculation of taxable interest on PF contributions
  • These rules shall come into force on the 1st day of April 2022
Tax treatment of interest income on PF contributions

Manner of Determining Taxable & Non-Taxable PF Contributions

  • Taxable Contributions = ((Contributions in excess of 2.5L/5L*)+(Interest accrued thereon)-( Withdrawals))
  • Non Taxable Contributions =   ((Closing balance as on 31-03-2021)+ (Contributions up to of 2.5L/5L*) +(Interest accrued thereon)-( Withdrawals))
  • Such interest income is taxable under the head “Income from other sources”  
  • *Contribution shall be considered during FY 21-22 and onwards.
 
 

Some FAQs

Q1- What is taxable under the new rule?

Ans: Interest portion on PF contributions exceeding 2.5L is taxable.

Q2- Does the 2.5L limit includes employer contributions?

Ans: No, alone employee contribution shall be considered to determine the 2.5L limit.

Q3- What is the applicability of this new rule?

Ans: Applicable from FY 2021-22 (A.Y 2022-23).

Q3- Under which head this income should be disclosed?

Ans: Income from other sources.

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Published by

Ajay Kumar Maggidi
(Manager - Finance & Accounts)
Category Income Tax   Report

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