Question And Answer
Subject: Taxability of Interest on VPF.
Querist: P.Sekharbabu
Answered by:
Tags: , ,
Date: May 27, 2021
Query asked by P.Sekharbabu


Kindly clarify on the following issue in connection with investment under VPF for Private sectors.

If the investment under VPF is above 3 Lacs during the FY2021-22, what will be tax effect and how much can be claimed as exemption
If the VPF accumulation upto 31.03.2021 is Rs. 10 Lacs.  What is the taxability?
Interest credited to the account will be on accumulated VPF amount, How to claim exemption and arrive the taxable interest?
Whether interest taxable above Rs 2.5 Lacs is on Contribution made during the year or on the accumulation in the account?

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: From an income-tax perspective, EPF falls under the Exempt-Exempt-Exempt (EEE) taxation regime. This means that no tax is levied at the time of contribution, on accrual of interest and at the time of withdrawal. VPF is an extension of EPF scheme and therefore provides similar interest rate and tax benefits.

As per the memorandum to the Finance Bill, 2021, exemption of interest accruing to a provident fund will not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of contribution made by the person exceeding two lakh and fifty thousand rupees in a previous year in that fund, on or after 1st April, 2021, computed in such manner as may be prescribed.

Till date, no method or manner has been prescribed.

From our understanding, the Government has made interest on an employee’s contribution of more than Rs 2.5 lakh taxable in Budget 2021.

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