As I understand I am liable for tax on income generated in India as an Indian Citizen, however my recent visit to Provident fund office got me wondering on hearing the office at PF office that the principal amount will be exposed to TDS on the Principal contribution that I do.
Does this mean that now on saving will also be taxed? Please advise:
a) Does it make sense to continue investment in Provident Fund if the principal investment gets taxed?
b) Isn’t the income tax, by law, on the income generated, but never on the Principal or capital?
Ans: Investment in provident fund is still one of the best modes considering rate of return and risk free return. From FY 2021-22, rules have changed.
Interest on an employee's contribution to an EPF above Rs 2.5 lakh per annum is taxable and accordingly interest is also subject to TDS.
If employer is not contributing in the provident fund account, the threshold will be Rs 5 lakh per annum.