“The cap is not applicable on PPF because there is already a limit of ₹1.5 lakh contribution in a year to PPF,” the official said. The government has proposed changing taxation rules for provident funds by levying income-tax on the interest earned on contributions exceeding ₹2.5 lakh in a financial year.
“The cap is not applicable on PPF because there is already a limit of ₹1.5 lakh contribution in a year to PPF,” the official said.
The government has proposed changing taxation rules for provident funds by levying income-tax on the interest earned on contributions exceeding ₹2.5 lakh in a financial year.
“The exemption has been removed for EPF (Employee Provident Fund) and GPF (General Provident Fund). It has been specified in the Act,” the official added.
The Central Board of Direct Taxes did not respond to queries seeking a response on the matter.
Taxing interest on EPF contributions beyond ₹2.5 lakh is one of the key amendments in the Union Budget 2022. However, the budget memorandum does not specify the applicability of the rule change, which has caused confusion, said tax experts.
“Sections mentioned (in the memorandum) imply that PPF is included, but under the PPF Act itself, contributions are restricted to ₹1.5 lakh a year, so banks won’t accept the amount above this limit and hence taxpayers won’t be able to breach the ₹2.5 lakh limit in any way,” said Aarti Raote, a partner at Deloitte India.
Some experts said the changes to the Income- Tax Act will have no impact since any change to PPF contributions will have to be made by amending the PPF Act.
“Unless the PPF rules change and individuals are permitted to contribute more than ₹2.5 lakh a year to PPF, the amendment to Section 10 (11) will remain only academic from the PPF perspective,” said Shalini Jain, a tax partner at EY.
The government said it wants to stop misuse of the facility by high-income earners who were depositing big amounts in EPF and that the move would impact less than 1% of contributors.
The government found in a study carried out before the budget that about 123,000 people had a combined EPF corpus of ₹62,500 crore in FY19, finance ministry officials said. While the top 20 high net worth individuals had about ₹825 crore in their accounts, the top 100 contributors had more than ₹2,000 crore.
The EPF has 63.3 million contributing members.