Zero Tax On Provident Funds’ Interest Income Till Rs 5 Lakh; But There Is A Catch

On Tuesday, as against the limit for tax exemption on interest earned on provident fund contribution by employees of Rs 2.5 lakh as proposed in the budget, the limit of the same has been increased to Rs 5 lakh per annum in specified cases.

In an attempt to dissuade high earners from parking their surplus in what is supposed to be common man’s retirement fund, FM Sitharaman in her budget for 2021-22, capped the tax-free interest earned on provident fund contribution by employees and employers together to a maximum of Rs 2.5 lakh in a year.

The Catch In Zero Tax On Provident Funds’ Interest Income

The minister, in a reply to a discussion on the Finance Bill 2021 in Lok Sabha, said that tax-free limit is now being amended to a maximum of Rs 5 lakh per annum. This exemption does not include the employer’s contribution beyond the statutory limit of up to 12 percent of the basic pay.

This will come into effect from April 1. She said the 2.5 lakh limit, which covers 92-93 percent of the people who are subscribers, has been made keeping in mind that small and medium taxpayers are not impacted by the step. There are over six crore subscribers in the Employees’ Provident Fund Organisation (EPFO).

With 127 official amendments by voice vote, the Finance Bill was later passed by the Lower House and with the passage of the same, the budgetary exercise for 2021-22 has been completed by the Lok Sabha.

Disinvestment Targets

Commenting on the disinvestment in which the government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including two PSU banks and one general insurance company, in the next fiscal year beginning April 1, FM said that she is hopeful for meeting the target for the next financial year as the market is buoyant. However, the target amount is lower than the record Rs 2.10 lakh crore which was budgeted to be raised from CPSE disinvestment in the current fiscal year. Out of total Rs 1.75 lakh crore target for the fiscal year 2021-22, Rs 75,000 crore would come as CPSE disinvestment receipts and Rs 1 lakh crore is to come from selling government stake in public sector banks and financial institutions.

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