Big update on Provident Fund! Govt hikes PF threshold limit to Rs 5 lakh for earning tax-free interest

Replying to a discussion on the Finance Bill 2021 in Lok Sabha, Nirmala Sitharaman said the tax-free limit on PF is now being amended to a maximum of Rs 5 lakh per annum.

New Delhi: Finance Minister Nirmala Sitharaman has announced to raise the limit for tax exemption on interest earned on provident fund contribution by employees to Rs 5 lakh per annum in specified cases as against Rs 2.5 lakh that she had proposed in the Union Budget 2021.

The new provision would come into effect from April 1.

Announcing the Budget for 2021-22, Sitharaman had announced that interest on employee contributions to PF over a certain amount has now been made taxable. The Budget for the fiscal year beginning April would have make interest on employee contributions to PF above Rs 2.5 lakhs per annum taxable effective April 1, 2021.

However, replying to a discussion on the Finance Bill 2021 in Lok Sabha on Tuesday, the FM said the tax-free limit is now being amended to a maximum of Rs 5 lakh per annum.

This exemption, however, is subject to condition that the up to Rs 5 lakh contribution does not include employer's contribution beyond the statutory limit of up to 12 per cent of the basic pay.

She clarified that the Rs 2.5 lakh limit is covering 92-93 per cent of the people who are subscribers and they are entitled for assured interest that is tax free under this scheme.

In the previous 2020 Budget, the finance minister had capped the tax exemption on employers contribution to PF, NPS and superannuation funds at an aggregate of Rs 7.5 lakh per annum.