EXPLAINER
The story so far: In the Union Budget of 2021-22, Finance Minister Nirmala Sitharaman introduced a new provision to tax income on provident fund contributions from employees beyond ₹2.5 lakh a year. An Employees’ Provident Fund (EPF) account is mandatory for formal sector workers earning up to ₹15,000 a month in firms with over 20 employees, as a means of ensuring retirement income. An amount equivalent to 12% of the basic pay and dearness allowance paid to a worker is deducted as employees’ contribution to their accounts, with an equivalent amount remitted by the employer. The EPF members are also allowed to voluntarily deploy more of their savings into the EPF account, an option many choose due to the need to build a larger nest egg for their sunset years and the reasonably healthy tax-free annual returns on the EPF.
