EPF accounts split into Taxable and Non-Taxable
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EPF accounts split into Taxable and Non-Taxable

In this post, we will see the new update by CBDT regarding the split in the EPF account.

As per the new CBDT update, the employers need to split existing employees’ Provident Fund (PF) accounts into 2 separate accounts from Tuesday onwards. Earlier, PF contribution was not taxable, but now Government is planning to introduce a tax on employees with PF contributions above ₹2.5 lakh a year.

This could be hectic work for the Employees’ Provident Fund Organisation (EPFO). Furthermore, employers will now need to maintain separate details of employees’ both taxable and non-taxable contributions. Thus, negatively impacting employees with large salary packages who make huge contributions to evade tax. They will have to restructure their whole PF contribution.

The employees’ EPF statement will contain 2 parts, i.e. taxable and non-taxable contributions and EPF withdrawals in this new condition are not yet clarified.

The organisations now need to maintain 2 separate EPF accounts, i.e., taxable and non-taxable from FY 2021-22 onwards.

The non-taxable contribution account (NTCA) will include the current year contribution (up to Rs 2.5 lakh), accumulated PF balance as of March 31, 2021. Any contributions made after  are “not included in the taxable contribution account”

The taxable contribution account (TCA) includes –

  1. Contribution made above the threshold (i.e. above Rs. 2.5 lakh of self contribution, Rs. 5 lakh where the government does not contribute for central government employees i.e. GPF contributions)
  2. Interest on the above
  3. Sum of the above reduced by withdrawals made

Note:

  • Interest credited to the NTCA account will remain tax-exempt.
  • Interest credited in the TCA account will be taxable.

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