Interest on PF contributions above Rs 2.5 lakh pa to be taxed: What does this mean, how it affects common man and middle class - EXPLAINED

Union Finance Minister Nirmala Sitharaman on Monday announced the Budget 2021, her third budget overall. The Finance Minister kept the income tax slab intact, much to the disappointment of the common man. However, she also made an announcement regarding the interest earned on provident funds. The Budget for the fiscal year beginning April will now make interest on employee contributions to PF above Rs 2.5 lakhs per annum taxable effective April 1, 2021.

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So, what does that mean for common man, how does it affect their savings and does it have any repercussions on them too?  These are the questions that must be on everyone's mind right now.

"Well, understand this, the number of people who actually contribute more than Rs 2.5 lakh is less than 1 per cent of the total number of contributors in the EPF," reported DNA quoting Expenditure Secretary T V Somanathan. Therefore, one thing is sure average common man do get affected by this move of the Finance Minister.  

Employees' Provident Fund Organisation (EPFO) has over six crore subscribers.  

Even Finance Minister Nirmala Sitharaman had said that the Employees' Provident Fund (EPF) is aimed at the welfare of workers and any person earning less than Rs 2 lakh per month will not be affected by the Budget proposal.

The move is to restrict 'super rich' who try to take advantage of this fund. 

"We are not reducing any workers right. But at the same time, getting tax exemption and 8 per cent rate of interest for somebody who puts Rs 1 crore into the account, we thought it may not be correct. And therefore, we have put the ceiling," she added.