The central government has appeased its employees with a 3 per cent DA hike but the opposition has also snatched a big discount.
Government imposes tax on GPF of government employees
From now on, interest income on GPF will have to be taxed
From April 1, government employees will have to pay tax on GPF interest
GAPF only applies to government employees
GPF stands for General Provident Fund
The central government has not only made its employees happy by giving them a 3 per cent hike recently but has also made them unhappy with it. Until now, central government employees used to get tax exemption on GPF income but from April 1, the government has abolished it, meaning now government employees will have to pay tax on GPF interest income.
GPF interest income tax will be applicable from April 1
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The new tax rule on General Provident Fund (GPF) has come into effect from April 1. Until now, interest earned on GPF was tax free, but from now on it will be taxable. However, a limit has been set for this. The tax will be levied only if the interest income exceeds a certain limit. Union Finance Minister Nirmala Sitharaman had announced a tax rule on GPF in the recent budget. This rule is now applicable to the new financial year from 1st April.
What is GPF?
GPF is a type of PF applicable only to government employees. GPF applies to all government employees while PF applies to private entities or companies with more than 20 employees. Government employees have to deposit a certain amount in GPF. Until now, GPF interest income was tax free but now it is no more.
GPF for non-government employees is taxed at Rs 2.5 lakh
Last year, the government made some changes to the Income Tax Rules, 1962, regarding the tax on GPF. It was mentioned in the change that the limit of tax on GPF for non-government employees is Rs 2.5 lakh. The limit has been fixed at Rs 5 lakh for government employees. This means that if an employee of a private company invests Rs 2.5 lakh in GPF and earns interest on it, he will have to pay tax.
If a government employee submits a GPF of Rs 5 lakh, interest will be taxed
The rule for government employees is different. If an employee deposits Rs 5 lakh in GPF and earns interest on it, interest income tax will have to be paid. GPF of government employees does not deposit money of any other company, whereas in case of private companies the company also deposits its own money in addition to the employee.
How to calculate tax
A special rule has been made for calculating tax on GPF. There will be two types of PF accounts after FY 2021-22. Taxable account and non-taxable account. The closing balance in the non-taxable account will have to be declared on March 31, 2021. The employee will have to remit the money deposited in the account of last year 2021-22 and the same year and those which have not been included in the taxable account to the non-taxable account. In both the cases mentioned above, if interest is earned, it will also have to be credited to the non-taxable account. As per the rules, the money deposited in GPF by the employee before 31st March 2021 will not be taxable and after 31st March 2022 if the amount deposited in excess of the prescribed limit will be taxable. The limit has been fixed at 2.5 lakh for non-government employees and 5 lakh for government employees.