Central Board of Direct Tax (CBDT) has issued a notification regarding the calculation of taxable interest relating to contribution in a provident fund or recognised provided fund, exceeding specified limit.
A new Income Tax Rule 9D has been inserted after Rule 9C in the Income Tax Rules, 1962. According to which the interest earned on an employee’s contribution above Rs 2.5 lakh in a year will become taxable in the hands of the employee. In case of government sector employees, the monetary ceiling shall be Rs 5 lakh.
However, as of now, interest earned on provident fund balance is fully exempted from tax in the hands of the employee. Earlier, in Budget 2021, the Finance Minister had proposed taxability of interest on various provident funds, where the specified limit exceeds.
The Income-tax (25th Amendment) Rules, 2021 will be applicable with effect from 1st April, 2022.