Union Budget of 2022 made interest income over ₹2.5 lakh in an individual's Employees’ Provident Fund Organization (EPFO) account taxable. However, with just two weeks left for the financial year to end, taxpayers are still awaiting clarity over how the taxes will be calculated, The Economic Times reported.
The EPFO and organizations managing the EPF contributions of employees in-house are trying to glean information on issues like withholding tax liability and when the interest on the contributions would be subject to income tax. There is no certain information on whether the taxable portion of interest must be included to pay taxes every year or whether the corpus should be subject to tax on lumpsum withdrawal at the time of retirement, the report said.
The budget announced last year had announced taxes on the interest earned on employees’ provident fund accounts more than ₹2.5 lakh in a year. This requires splitting the accounts of employees with a yearly contribution exceeding ₹2.5 lakh beginning April 01, 2021. While one account would contain the exempt part of the contribution, the other houses the taxable portion more than ₹2.5 lakh. The change was introduced to prevent high-income group employees from getting an excess advantage due to the tax-exempt status of PF.
Sorting out the confusion regarding EPF interest taxation is important to avoid delay and confusion over tax calculations from April last year. The uncertainty concerning tax calculations comes amid the Central Board of Direct Taxes issuing a circular regarding the same.