How to Calculate Tax ability of Interest on Access to Contribution - New Threshold Limit and Assumption of Tax Computation 

VPF Contribution

 1. Additional tax interest on additional PF contributions dated 11.02.2021 of in this article, to explain the new threshold of tax exemption and the method of tax calculation.

 

2. The government has increased the threshold for deposits in the Provident Fund by Rs 5 lakh per annum, for which interest-free tax will continue if no employer contributes. The announcement by Finance Minister Nirmala Sitharaman during the passage of the bill in the Lok Sabha on March 23 was part of the amended parts of the 2021 Finance Bill.

 

3. Provident funds where employees do not contract: The General Provident Fund (GPF) is a provident fund where employers do not contribute.

 

Thus, the proposed amendment by The Finance Minister Nirmala Sitharaman to the budget provision relating to the capping of employees' provident fund contributions for tax exemption is only for general provident fund customers.

 

You may also, Like- Prepare at a time 50 Employees Form 16 Part B for the F.Y.2020-21 as per new and old tax regime [This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]

 

4 What is General Provident Fund (GPF)? General Provident Fund (GPF) is a type of PF account available only to government employees in India

G.P.F.

All temporary of permanent government employees, and re-employed pensioners (except those eligible for the Contributory Provident Fund) must compulsorily subscribe to GPF after one year of uninterrupted service.

 

The amount of GPF subscription is determined by the customer himself. However, the contribution rate should not be less than 6% of the total employee grant. The maximum contribution is 100% of the employee's salary.

 

The interest rate of GPF fund is revised from time to time by the Government based on the existing market interest rate.

 

5. The increased marginal limit in the Provident Fund is Rs. 5 lakhs per annum, for which interest tax exemption will continue only for General Provident Fund and there is no change in the provisions for general EPF customers, where both employer and employee contribute at least 12% of basic plus DA each and Contributions for interest includes 2.5 Lacks.

6. Employee Private Fund: The Employee Provident Fund (EPF) is available to salaried people in the organized sector and contributes to the fund by both the employee and the employer.

You may also, Like- Prepare at a time 100 Employees Form 16 Part B for theF.Y.2020-21 as per new and old tax regime [This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]

 

EPF is a government-backed saving scheme that provides social security nets to workers in the organized sector.

 E.P.F.

It has been made mandatory for any company having 20 or more employees to register under the EPF scheme and provide its benefits to its employees.

 

The EPF is managed by the Employees Provident Fund and the Employees Provident Fund Organization (EPFO) under MISS. Provisions Act, 1952 195

 

Employees listed under EPF will have to contribute 12% of their initial salary to the EPF fund and the employer will contribute equally on a monthly basis.

 

The interest rate on EPF funds is decided by the Government from time to time which is currently fixed at 7.50%.

 

7. Voluntary Provident Fund (VPF) Voluntary Retirement Fund Contributes voluntary funds from the employee to his or her future fund account. This contribution is outside the 12% contribution of an employee to his EPF. The maximum contribution is up to 100% of his basic salary and value-added allowance. The interest rate is earned at the same rate as EPF.

 

The VPF option is only available to salaried individuals who pay their monthly dues through their fixed salary account.

 

VPF is an extension of EPF. In an EPF account, a person is required to fund his 12% basic salary and value-added allowance. In any VPF, it is the volunteer contribution that is mostly limited to 100%.

 

8. The Employees Provident Fund (EPF) for the organized sector, the GPF for government employees, and the Public Provident Fund (PPF) for all resident Indians are the three main provident funds.

 

9. Budget 2021-22 rationalizes tax-free income on the provident fund contributions of high-income earners by waiving interest income earned on EPF and VPF applicable annual contributions.

You may also, Like- Prepare at a time 50 Employees Form 16 Part A&B for the F.Y.2020-21 as per new and old tax regime [This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]

Form 16


10. The government has not been informed how the interest will be calculated. However, an attempt has been made to explain the method of calculating interest with the help of an illustration.

 

11. Retirement: Mr. Suresh Kumar is a salaried employee, Employee Provident Fund (EPF), and his legitimate contribution to the volunteer is as follows: -

 

Sl

Particulars

FY 2021-22

FY 2022-23

(a)

Basic +DA

Rs 1,00,000 pm

Rs 1,20,000 pm

(b)

Contribution in VPF

Rs. 18000 pm

Rs. 20000 pm

(c)

Statutory Contribution

Rs. 12000 pm

Rs. 14400 pm

(d)

Rate of Interest

8.5% pa

8.5% pa

 

MMYY

Monthly Contribution ( EPF + VPF)

Cumulative Balance is available at the end of the month.

Interest @ 8.5% on balance at the end of the previous month

 

Rs.

Rs.

Rs.

Apr-21

30000

30000

0

May-21

30000

60000

212.50

Jun-21

30000

90000

425.00

Jul-21

30000

120000

637.50

Aug-21

30000

150000

850.00

Sep-21

30000

180000

1062.50

Oct-21

30000

210000

1275.00

Nov-21

30000

240000

1487.50

Dec-21

30000

270000

1700.00

Jan-22

30000

300000

1912.50

Feb-22

30000

330000

2125.00

Mar-22

30000

360000

2337.50

TOTAL

360000

 

14025.00

 

Note: The calculation of the total EPF balance in the account at the end of the year is the total balance at the end of last month and the total source of interest that has been added. Therefore, the total balance available in the account is:

2,000. 3,60,000 + Rs.14,025 = Rs. 3,74,025

You may also, Like- Prepare at a time 100 Employees Form 16 Part A&B for the F.Y.2020-21 as per new and old tax regime [This Excel Utility can prepare at a time 50 Employees Form 16 Part B as per U/s 115 BAC]

 

Form 16 Part A&B

12. Calculation of Taxable Interest for 2021-222: -

Taxable interest will have to be calculated at the end of 2021-22

At the end of the year the balance is Rs. 3,74,025 / -

The amount of taxable interest will be

(3,74,025-2,50,000) * 8.5% = Rs.10,542.12

The fiscal year 2022-23

The balance available at the end of 2021-22 is the opening balance for 2022-23.

MMYY

Monthly Contribution (EPF +VPF) Rs.

Cumulative Balance is available at the end of the month Rs.

Interest @ 8.5% on balance at the end of the previous month. Rs.

O/B

 

374025

 

Apr-22

34400

408425

2649.34

May-22

34400

442825

2893.01

Jun-22

34400

477225

3136.68

Jul-22

34400

511625

3380.34

Aug-22

34400

546025

3624.01

Sep-22

34400

580425

3867.68

Oct-22

34400

614825

4111.34

Nov-22

34400

649225

4355.01

Dec-22

34400

683625

4598.68

Jan-23

34400

718025

4842.34

Feb-23

34400

752425

5086.01

Mar-23

34400

786825

5329.68

TOTAL

412800

 

47874.13

 

Calculation of Taxable Interest for 2022-23: -

Taxable interest will have to be calculated towards the end of 2022-23

At the end of the year the balance is Rs. 7,86,825 / -

Less: Opening Balance 3,7474,025 / -

The amount of taxable interest will be

7,86,825 - (3,74,025 + + 2,50,000) * 8.5%

= Rs. 13, 838 / -

 

Note 1: Since the tax has already been deducted in the amount of Rs. 3,60,000 / - in the opening balance in 2021-22, the same amount will be deducted in 2022-23.

 

Note 2: Since contributions above Rs.250,000 will be taxable, the interest amount of Rs.14,025 / - included in the opening balance will not be considered for tax purposes.