In her Budget speech for 2021-22, Finance Minister Nirmala Sitharaman had announced that beginning FY 2022-23, interest on provident funds -- Employee Provident Fund and General Provident Fund -- will be taxed in case the amount exceeds the threshold limit. Subsequently, the Central Board of Direct Taxes (CBDT) notified rules that specified how the interest on the provident fund contribution of an employee will be taxed.Provident fund is a retirement savings scheme for employees who contribute a part of their savings every month. It is managed by the government. All employees -- government and private -- who make contributions to the provident fund can withdraw money after retirement at 60 years or even before it.As per Rule 9D of Income-Tax Rules, 1962 -- a new section that was inserted into the Act by the CBDT last year -- the threshold limit is Rs 2.5 lakh for non-government employees and Rs 5 lakh for government employees for taxable interest. This means that all non-government employees -- where the employer is contributing -- with a provident fund balance above Rs 2.5 lakh will pay tax on interest earnings of EPF. Meanwhile, all government employees -- where the employer isn't contributing -- with a provident fund balance above Rs 5 lakh will pay tax on interest earnings of GPF.To calculate taxable interest, existing PF accounts will be split into two. These accounts will segregate taxable and non-taxable contributions. Here's how the CBDT separates the two:-Non-taxable contribution This will be an aggregate of the following:i) Closing balance in the account as of March 31, 2021ii) Any contribution made by the person in the account during the previous year 2021-2022 and subsequent previous years, which is not included in the taxable contribution accountiii) Interest accrued on (i) and (ii)Taxable contributionThis will be an aggregate of the following:i) Any contribution made by the person in a previous year in the account and subsequent previous years, which is in excess of the threshold limitii) Interest accrued on (i)Breaking it down, interest will be calculated separately for non-taxable contributions and taxable contributions from April 1. All PF contributions made until March 31, 2021, will be non-taxable. However, earnings from contributions in excess of the specified threshold limits made in FY2021-22 will be taxable.