VPF restrict for tax-free curiosity to be hiked? The federal government is contemplating growing the restrict on voluntary provident fund (VPF) contributions below the Staff’ Provident Fund Organisation (EPFO) that earn tax-free curiosity. Presently, curiosity earned on contributions above Rs 2.5 lakh is taxable.
The target is to encourage lower-middle and middle-income salaried people to avoid wasting extra via EPFO, enabling them to construct a considerable retirement corpus.
The ministry of labour and employment is analyzing the difficulty and should talk about it with the finance ministry in the course of the FY26 finances deliberations, folks accustomed to the matter advised ET.
The Rs 2.5 lakh ceiling on voluntary contributions was launched within the FY22 finances to forestall high-income workers from utilizing the ability to earn tax-free curiosity increased than that supplied by banks or fastened deposits.
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VPF contributions, curiosity, and maturity proceeds are usually exempt from taxation. EPFO has been providing rates of interest above 8% since FY78, reaching a peak of 12% in FY90 and sustaining that stage for 11 years till FY2000.
The rates of interest on PF accumulation had been 8.10% for FY22, 8.15% for FY23, and eight.25% for FY24.
Below the present Staff’ Provident Funds & Miscellaneous Provisions Act, there is no such thing as a restrict on VPF contributions to the PF account, which might be as much as 100% of primary wage and dearness allowance.
The federal government aimed to deal with the perceived misuse of this provision by high-income earners by capping the tax-free curiosity earnings earned on voluntary contributions at Rs 2.5 lakh per yr.
EPFO has a mean of 70 million month-to-month contributors, greater than 7.5 million pensioners, and a corpus exceeding Rs 20 lakh crore.
