Govt unlikely to review Rs 2.5 lakh threshold to tax PF interest

(This story originally appeared in on Feb 17, 2021)

NEW DELHI: The government is unlikely to review the Rs 2.5 lakh threshold for taxing interest income on provident fund contributions, arguing that the move affects just 1% of subscribers to the social security scheme.

Government sources said there was a practice of some people parking large sums, even up to Rs1 crore a month, in PF to seek tax exemption and also earn high interest rate.

“Of course, PF is lifetime saving of the working class and the government is committed to ensure that they benefit. But we had to undertake reforms to ensure there is no misuse of the tax exemption on PF deposits,” said a senior government functionary.

Sources said the new measure was introduced to essentially identify those seeking tax exemption and assured returns by parking large amounts in PF accounts. “We have details of certain individuals depositing Rs 1 crore and even Rs 2 crore a month in EPF accounts,” the official said, adding it was causing a loss to the government.

On Tuesday, TOI had reported that the government is exploring the option of an annual deduction on the interest income earned by employees contributing over Rs 2.5 lakh into their PF accounts, while suggesting that accounts up to the tax-free cap be maintained separately.


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