This article is from Feb 13, 2021

New Wage Code: Will the tax exemption be affected by the rise in PF money?

In 2019, the federal government passed a ” new wage code” in parliament. Accordingly, the new pay rule is said to come into effect from April 1. In this regard, some questions are being asked on behalf of our followers.

The new wage policy stipulates that the basic salary of employees must be at least 50%. Thus, all private companies claim that if they have to adjust the payroll of their employees, the wages of the employees will go down.

The government has proposed to tax the Employees Provident Fund (EPF) for the first time in India. In a recent financial statement, the government proposed that interest income on the provident fund (PF) accounts exceeding Rs 2.5 lakh per annum should not be tax-deductible.

Looking at whether this could cause concern to all salaried individuals who contribute to the PF, they say it only affects those who pay the PF above Rs 2.5 lakh a year, although this does not affect their current savings.

When asked by Auditor Karthik for more details, he said, “These new rules will only apply to PF contributors above Rs 2.5 lakh per annum after the implementation of the new pay policy from April 1, 2021. It does not affect ordinary people in general. In addition, the 8.5 per cent interest rate on PF savings will be subject to business tax. But under the new rule ordinary people can be affected in a different way. That is, before this, the base salary rate was only 30-40%. But now they say it should be at least 50%. For example, if a person gets a salary of Rs 50,000, the basic rule is 40% of the basic salary i.e. Rs 20,000 to 12 per cent with a PF of Rs 2,400 and he gets a salary of Rs 47,600.

As the base salary rises, the amount paid into the PF account on behalf of companies and employees increases. Although the new wage code will reduce the salaries available to employees by a few thousand, the PF amount will increase.

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