Separate accounts will be maintained within provident funds, including employees' provident fund (EPF), where interest is taxable above a threshold from the current financial year.

       The Budget 2021-22 announced income tax on interest accrued on annual provident contributions above Rs 2,50,000 for non-government employees and Rs 5,00,000 for government employees.

       To clear any ambiguity over its operation, the Central Board of Direct Taxes inserted rule 9D under the Income Tax Act. It specified that separate accounts within provident fund accounts will be maintained, segregating taxable and non-taxable contributions to PFs.

       "This will provide a convenience of calculation to the taxpayers for segregation of interest to be offered to tax," said Shailesh Kumar, partner at Nangia & Co.

       Employers chip in 12 per cent of the basic salary and dearness allowance and employees contribute an equal amount to EPF and other funds. Employees get income tax deduction under Section 80C for EPF contributions up to Rs 1,50,000 in a year. Employers can also contribute to EPF on a voluntary basis. This is called a voluntary provident fund (VPF). This saving does not get an income tax deduction. But contributions over Rs 2.5 lakh would attract income tax on the interest income.