New rules for PF deduction and contribution – 2022
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New rules for PF deduction and contribution – 2022

In this blog, we will discuss the new rules for PF deduction and contribution, and their impact on employers and employees.

Index:

Latest news update

EPFO (Employee Provident Fund Organisation) has reported that EPFO is making some new changes in the rules of the EPF. The current PF account will be divided into two parts from April 1, 2022. And In this case of a contribution in more of the limits of the employee, the interest income will be taxable.

For all the government and corporate sector employees, the income tax department will start imposing taxes on PF returns from April 1, 2022. The CBDT (Central Board of Direct Tax) will start to execute the income tax 25th Amendment rule in April, which will apply for both the EPF and GPF (General Provident Fund) under the purview of this rule.

Finance Minister Nirmala Sitharaman during her budget 2022 speech mentioned that the interest on contribution towards the EPF account (Provident Fund) of over Rs 2.5 lakh p.a will be taxable from 1 April 2022. On the other hand for government employees, the limit of tax-free contribution to GPF is Rs 5 Lakh P.a.

As per the Central Board of Direct Tax, the tax will be levied on the salary of employees, if a corporate sector employee or a government employee was contributing above the limit, then the interest income will be assessed as income, and then the income tax will be deducted, and it deduction will come under the form 16.

Till FY22, all contributions made in the PF account so far, including contributions of up to Rs 2.5 lakhs made in FY22, will become in one account where no tax will be imposed as has been the practice with the PF, where contribution, interest, and withdrawal, all are tax-free. But another PF account will be created for each subscriber in FY22, where the contributions of over Rs 2.5 lakh made in the current year and following years will be placed. That will be a taxable account means interest earned on this contribution will be subject to applicable tax.

Facts of New PF Rules:

  1. The present PF accounts will be divided into taxable and non-taxable contribution accounts.
  2. Non-taxable accounts will also include their closing account as it is March 31, 2021.
  3. New PF rules will be implemented from the next financial year on April 1, 2022.
  4. A new section 9D has been included under IT rules to introduce the new tax on PF (Provident Fund) income from employee contributions above Rs. 2.5 lakhs per annum.
  5. These two separate accounts will also be created in the existing PF account for the calculation of taxable interest.

How does it impact employers and companies?

It will impact the employers and companies in terms of:

  • As you know, EPF is managed by the EPFO and General Provident Fund (GPF), where government employees are saving for retirement.
  • Many big companies in India handle the retirement savings of their employees through ‘’EPF Trust’’ to ensure that their employees don’t have to run behind any process to avail  these savings at the time of retirement/need.
  • Employers will have to create a separate return for the employee with more than 5L contribution and update to the dept.

How does it impact employees?

The new rules for PF deduction are impacting the employees are:

    • The annual contribution limit will be Rs 2.5 lakh will apply for EPF members when PF and GPF where there is no contribution from the employer, the being has been set at Rs 5 lakh.
    • EPF accounts are mandatory for employees earning up to Rs 15,000 in a month in companies with over 20 workers, with 12% of the basic salary deducted as employee’s contribution and another remitted by the employers.
    • This step will impact the high-income earners and HNIs (High Net-worth Individuals). Any person who earns more than Rs 20.83 lakh a year will attract his interest on EPF contribution access tax.
    • And the salary employees who use the Voluntary Provident Fund to invest more than the compulsory 12% of basic salary will also be impacted.

So, we have come to the end of our discussion of new rules for PF deduction and its impacts.

Related posts:

Latest PF interest rate & its procedure to calculate [Updated 2021-22]

PF ESI deduction rules

Calculation & deduction of Provident Fund

A guide to Payroll Process

EPF Rate of interest 2021-2022

If you have any queries or confusion kindly drop us the comment in the comment box.

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33 Comments

  • I worked for my first company(first job) for 2 years and my PF was deducted. I resigned from there and withdrew the whole PF+pension amount due to urgent need. I joined my second company where my basic salary was 15500 and HR told that I can opt out of the PF deduction, so there was no PF deduction. I have been in this company for six years now, so will this create any problem if I switch to another company which is deducting PF? my current basic is 34000.

    • NO, there will not be any problem due to this

  • I want to withdraw less than 50,000 from my total PF amount ( more than 1 lakh) under the reason medical illness with PAN card submission. could u pls tell me whether TDS will attract to my less than 50,000 withdrawal ? if yes then how much ?

    • NO, TDS is not applicable for Partial withdrawal

  • Currently my PF deduction is 12% of 15000, which is lower than the my Basic. Can I opt to deduct the PF on my total basic in mid of the Financial year.

    • Yes, you can. Please check with your employer.

  • is it minimum 1800 or whichever is higher 12% of basic and 1800?

    • Its 12% on Actual earning (excluding HRA) or 12% on 15000, as opted.

  • is PF contribution is compulsory for every employee if he is earning more than 50,000 per month

    • If it is the first employment then not mandatory (optional) else it is mandatory

    • meri salary 8000 pm hai main private security guard hoon mujhe pf katwana jaroori hai kya

    • If your employer is applicable under PF, then PF will be applicable to you.

  • If basic salary is less than 15000/- will Rs 1800/- (12%of 15000/-) be deducted from employee every month.

    • No, 12% on actual salary will be deducted

  • Dear Sir,
    I Working In Automobile Sector since 6 years My Salary has Increased to 30 thousand , earlier my pf was deducted , now even after 30,000 i can get my PF deducted.

    • Yes, the PF is applicable for you.

  • i have 12lakh in my epf account and i resigned from my job. can i withdraw full amount and will it deduct tax ? for withdraw full amount including pension amount , which form has to be filled and give to department?

    • If you have completed 5 yrs service, then the amount is not taxable else it is taxable. But your PAN should have been verified in your UAN Login. You can withdraw the whole amount including pension only if you have less than 10 yrs of service. After 10 yrs the pension amount cannot be withdrawn. To withdraw online claim of form 19 has to be raised from your UAN login

  • How much PF deduction should be for gross salary 49600 / month. For partnership firm as per govt rule.

    • The gross salary for PF is (Gross Salary – HRA). YOu can calculate it as (Salary *12%) or restrict it to 1800 which is 12% of 15000 when saalry is exceeding 15000

  • Can I reduce my and employer contribution to 1800 a month from current 10000 a month.

    • yes that can be done

  • above 10 years of pensionable service, we dont want pension and could we withdraw all pension amount or not?

    • No, we cannot withdraw.

  • My employee salary is 50000.my basic is 25000 , my hra is 10000 , my conveyance is 1600 and other allowance is 13400.is this gud salary breakup?
    And
    Iam calculating pf on only basic pay i e 25000 for employee and employeer cap is restricted for 1800 only.is it ok or is it legal ?

    • Yes, it is a good breakup of salary as 50% of the salary is under basic. Restriction at 1800 is as per PF rules.

  • PF deduction calculations are always a big confusion among employees. This article well explains the details on deductions done. Thank you for the much needed content.

  • sir
    kya pvt limited company main koi naya employee aata hai toh uska pf deducted karna company kee responsibility hai yaa nahin salary agar 25000/- p.m. ha kya company pe rule lagu hota hai ya nahin ya company kee apni iccha hai woh deduct kare yaa naa kare

    • If the company strength is more that 20 then Compnay registartion is mandatory for PF, but if the employee salary is more 15000 pm and it is the first employment then company has the choice of deducting PF

  • I am a teacher in private school under CBSE. My EPF contribution by my school is 1800/-pm, My basic according to 7th pay commission is 63500. I know it is not 12 percent of my basic. Can you help me in this matter.

    • EPF contribution is 12% of Basic pay or 12% of 15000 (Threshold limit for PF) whichever the employer takes up.

  • If basic salary is more than 15000, as per new salary structure. Ctc s 50% basic. Then basic is higher than 15000 then company not ready to deduct pf of employee. Please help us in such situation as per new codes of wages PF Gratuity is compulsory. Then why companies denied it

    • PF deduction for employees above 15000 is not mandatory. Gratutity is applicable by default when an employee has served for more than 5 years in the company