Contribution of up to five lakhs in PF is tax free

The government has increased the annual limit of tax-free contribution to Provident Fund (PF) from Rs 2.5 lakh to Rs 5 lakh. This exemption will be given only in those cases in which contribution will be made only by the employees. In the PF account to which both employees and employers contribute, the tax-free contribution limit of Rs 2.5 lakh per annum will be applicable.

Finance Minister Nirmala Sitharaman had announced a tax on the contribution of more than Rs 2.5 lakh per annum to the PF account for the next financial year (2021-22) in the budget presented on February 1 this year. It did not include contributions made by the employer or the company. He had said that only one percent of the provident fund account holders will be affected by the tax proposal on the interest received on the provident fund.

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