How to Calculate Taxability of Interest on Access to Contribution - New Threshold Limit and Assumption of Tax Computation
2. The government has increased the threshold for deposits in the Provident Fund by Rs 5 lakh per annum, for which interest-free tax will continue if no employer contributes. The announcement by Finance Minister Nirmala Sitharaman during the passage of the bill in the Lok Sabha on March 23 was part of the amended parts of the 2021 Finance Bill.
3. Provident funds where employees do not contract: The General Provident Fund (GPF) is a provident fund where employers do not contribute.
Thus, the proposed amendment by The Finance Minister Nirmala Sitharaman to the budget provision relating to the capping of employees' provident fund contributions for tax exemption is only for general provident fund customers.
You may also, Like- Prepare at a time 50 Employees Form 16 Part B for the F.Y.2020-21 as per new and old tax regime[This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]
4 What is General Provident Fund (GPF)? General Provident Fund (GPF) is a type of PF account available only to government employees in
All temporary of permanent government employees, and re-employed pensioners (except those eligible for the Contributory Provident Fund) must compulsorily subscribe to GPF after one year of uninterrupted service.
The amount of GPF subscription is determined by the customer himself. However, the contribution rate should not be less than 6% of the total employee grant. The maximum contribution is 100% of the employee's salary.
The interest rate of GPF fund is revised from time to time by the Government based on the existing market interest rate.
5. The increased marginal limit in the Provident Fund is Rs. 5 lakhs per annum, for which interest tax exemption will continue only for General Provident Fund and there is no change in the provisions for general EPF customers, where both employer and employee contribute at least 12% of basic plus DA each and Contributions for interest includes 2.5 Lacks.
6. Employee Private Fund: The Employee Provident Fund (EPF) is available to salaried people in the organized sector and contributes to the fund by both the employee and the employer.
You may also, Like- Prepare at a time 100 Employees Form 16 Part B for theF.Y.2020-21 as per new and old tax regime [This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]
EPF is a government-backed saving scheme that provides social security nets to workers in the organized sector.
It has been made mandatory for any company having 20 or more employees to register under the EPF scheme and provide its benefits to its employees.
The EPF is managed by the Employees Provident Fund and the Employees Provident Fund Organization (EPFO) under MISS. Provisions Act, 1952 195
Employees listed under EPF will have to contribute 12% of their initial salary to the EPF fund and the employer will contribute equally on a monthly basis.
The interest rate on EPF funds is decided by the Government from time to time which is currently fixed at 7.50%.
7. Voluntary Provident Fund (VPF) Voluntary Retirement Fund Contributes voluntary funds from the employee to his or her future fund account. This contribution is outside the 12% contribution of an employee to his EPF. The maximum contribution is up to 100% of his basic salary and value-added allowance. The interest rate is earned at the same rate as EPF.
The VPF option is only available to salaried individuals who pay their monthly dues through their fixed salary account.
VPF is an extension of EPF. In an EPF account, a person is required to fund his 12% basic salary and value-added allowance. In any VPF, it is the volunteer contribution that is mostly limited to 100%.
8. The Employees Provident Fund (EPF) for the organized sector, the GPF for government employees, and the Public Provident Fund (PPF) for all resident Indians are the three main provident funds.
9. Budget 2021-22 rationalizes tax-free income on the provident fund contributions of high-income earners by waiving interest income earned on EPF and VPF applicable annual contributions.
You may also, Like- Prepare at a time 50 Employees Form 16 Part A&B for the F.Y.2020-21 as per new and old tax regime [This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]
10. The government has not been informed how the interest will be calculated. However, an attempt has been made to explain the method of calculating interest with the help of an illustration.
11. Retirement: Mr. Suresh Kumar is a salaried employee, Employee Provident Fund (EPF), and his legitimate contribution to the volunteer is as follows: -
| Sl | Particulars | FY 2021-22 | FY 2022-23 |
| (a) | Basic +DA | Rs 1,00,000 pm | Rs 1,20,000 pm |
| (b) | Contribution in VPF | Rs. 18000 pm | Rs. 20000 pm |
| (c) | Statutory Contribution | Rs. 12000 pm | Rs. 14400 pm |
| (d) | Rate of Interest | 8.5% pa | 8.5% pa |
| MMYY | Monthly Contribution ( EPF + VPF) | Cumulative Balance is available at the end of the month. | Interest @ 8.5% on balance at the end of the previous month |
| | Rs. | Rs. | Rs. |
| Apr-21 | 30000 | 30000 | 0 |
| May-21 | 30000 | 60000 | 212.50 |
| Jun-21 | 30000 | 90000 | 425.00 |
| Jul-21 | 30000 | 120000 | 637.50 |
| Aug-21 | 30000 | 150000 | 850.00 |
| Sep-21 | 30000 | 180000 | 1062.50 |
| Oct-21 | 30000 | 210000 | 1275.00 |
| Nov-21 | 30000 | 240000 | 1487.50 |
| Dec-21 | 30000 | 270000 | 1700.00 |
| Jan-22 | 30000 | 300000 | 1912.50 |
| Feb-22 | 30000 | 330000 | 2125.00 |
| Mar-22 | 30000 | 360000 | 2337.50 |
| TOTAL | 360000 | | 14025.00 |
Note: The calculation of the total EPF balance in the account at the end of the year is the total balance at the end of last month and the total source of interest that has been added. Therefore, the total balance available in the account is:
2,000. 3,60,000 + Rs.14,025 = Rs. 3,74,025
You may also, Like- Prepare at a time 100 Employees Form 16 Part A&B for the F.Y.2020-21 as per new and old tax regime [This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]
12. Calculation of Taxable Interest for 2021-222: -
Taxable interest will have to be calculated at the end of 2021-22
At the end of the year the balance is Rs. 3,74,025 / -
The amount of taxable interest will be
(3,74,025-2,50,000) * 8.5% = Rs.10,542.12
The fiscal year 2022-23
The balance available at the end of 2021-22 is the opening balance for 2022-23.
| MMYY | Monthly Contribution (EPF +VPF) Rs. | Cumulative Balance is available at the end of the month Rs. | Interest @ 8.5% on balance at the end of the previous month. Rs. |
| O/B | | 374025 | |
| Apr-22 | 34400 | 408425 | 2649.34 |
| May-22 | 34400 | 442825 | 2893.01 |
| Jun-22 | 34400 | 477225 | 3136.68 |
| Jul-22 | 34400 | 511625 | 3380.34 |
| Aug-22 | 34400 | 546025 | 3624.01 |
| Sep-22 | 34400 | 580425 | 3867.68 |
| Oct-22 | 34400 | 614825 | 4111.34 |
| Nov-22 | 34400 | 649225 | 4355.01 |
| Dec-22 | 34400 | 683625 | 4598.68 |
| Jan-23 | 34400 | 718025 | 4842.34 |
| Feb-23 | 34400 | 752425 | 5086.01 |
| Mar-23 | 34400 | 786825 | 5329.68 |
| TOTAL | 412800 | | 47874.13 |
Calculation of Taxable Interest for 2022-23: -
Taxable interest will have to be calculated towards the end of 2022-23
At the end of the year the balance is Rs. 7,86,825 / -
Less: Opening Balance 3,7474,025 / -
The amount of taxable interest will be
7,86,825 - (3,74,025 + + 2,50,000) * 8.5%
= Rs. 13, 838 / -
Note 1: Since the tax has already been deducted in the amount of Rs. 3,60,000 / - in the opening balance in 2021-22, the same amount will be deducted in 2022-23.
Note 2: Since contributions above Rs.250,000 will be taxable, the interest amount of Rs.14,025 / - included in the opening balance will not be considered for tax purposes.
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