Budget 2021 has proposed to levy income tax on interest earned by an employee/person on his/her contribution in excess of Rs 2.5 lakh in a financial year to a provident fund . On a plain reading of the budget documents, it appears that tax will apply to the interest earned on contributions made to Employees' Provident Fund (EPF), Voluntary Provident Fund (VPF) as well as Public Provident Fund (PPF). Our Opinion There are separate limits for EPF/VPF and PPF i.e. contributions to PPF and EPF/VPF will not be aggregated for the purpose of calculating the limit of Rs 2.5 lakh. This would mean that an individual will still enjoy tax exemption on the interest earned on PPF contributions because a person is not allowed to contribute more than Rs 1.5 lakh per financial year to PPF as per section 10(11) of the Income-tax Act. However, in case of EPF and VPF contributions, the total of contributions to both - EPF and ...
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