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The Government has changed the rules for calculation of interest on EPF/GPF/RPF Accounts and has set threshold limit for contribution in EPF Rs. 2.50 Lakhs and GPF Rs. 5.00 Lakhs on which interest received will not be taxable. Any interest on contribution made during the FY 2021-22 in excess of amount of Rs. 2.50 Lakhs (EPF) and Rs. 5.00 Lakhs (GPF) will be taxable as “Income from Other Sources “in the hand of employee or person contributing to those funds.

Read EPFO Circular : Contribution to provident fund – Calculation & deduction of taxable interest

CBDT Notification No. 95/2021, dated 31-08-2021, has notified the method of calculation of interest and maintenance of two separate accounts in the EPF /GPF as Taxable Account and Non-Taxable Account.

The Finance Act, 2021 has amended Section 10(11) and Section 10(12) to provide that exemption shall not be available for the interest income accrued during the previous year on the recognised and statutory provident fund in the account of the person to the extent it relates to the contribution made by the employees in excess of Rs. 2,50,000 in the previous year.

However, if such person has contributed to a fund in which there is no contribution by the employer, a limit of Rs. 2,50,000 shall be increased to Rs. 5,00,000 (GPF). The amount of such interest income shall be computed as per the prescribed rules.

The CBDT has notified Rule 9D to calculate the taxable portion of interest pertaining to the contribution made to a statutory or a recognized provident fund in excess of the threshold limit of Rs. 2.5 lakh or 5.0 lakhs as the case may be. It provides that separate accounts within the provident fund account shall be maintained during the previous year 2021-22 and onwards for the taxable and non-taxable contribution made by the person.

As per Rule 9D, for the purpose of tax calculation, separate accounts shall be maintained within the Provident Fund account from FY 2021-22 and onwards for the taxable and non-taxable contribution by an individual employee.

The same is tabulated below:

Taxable contribution account Non-taxable contribution account
i) Employee contributions made during the FY from FY 2021-22 onwards in excess of the threshold limits of 2.50 Lakhs or 5.00 Lakhs (as the case may be)

ii) Add: Interest accrued thereon

iii) Less: Any withdrawal from the account

i) Closing balance as on 31 March 2021

ii) Add: Employee contributions from FY 2021-22 onwards which is not included in the taxable contribution account

iii) Add: Interest accrued thereon

iv) Less: Any withdrawal from the account

PLEASE NOTE THAT: only the interest accrued in Taxable contribution account would be taxable in the hands of the employee under the income head ‘Income from Other Sources’. The interest accrued in Non-taxable contribution account shall continue to be tax exempt.

NEW CIRCULAR BY EPFO ON CALCULATION OF TDS

Employee Provident Fund Organisation (EPFO) issued a circular dated 06th Apr 2022 which clarifies about the calculation and deduction of tax on taxable interest which is relating to contribution in provident fund pursuant to CBDT Notification No. 95 of 2021-Income Tax( as mentioned in above paragraphs).

This circular is applicable to all EPF subscribers with effect from 01.04.2022 for FY 2022-­23.

As per the circular, the effective date for TDS in case of final claim settlement shall be:

i) 01.04.2022 or final settlement/ transfer – whichever is later, and

ii) in all other case, TDS shall be on the date of credit of interest.

APPLICABILITY:

(i) TDS will be applicable in case of

a) PF final settlement,

b) transfer claims,

c) on transfer from Exempted establishments to EPFO and vice versa,

d) on transfer from one Trust on another,

e) past accumulations transfer, at the time of annual accounts processing, on back period accounting after accounts for year 2021-­22 are processed.

(ii) The TDS will also be applicable in death cases as in the case of a live member.

(iii) It will be applicable to all EPF members including members of Exempted Establishments/Exempted Trusts.

(iv) It will also be applicable in case of International Workers.

METHODOLOGY OF COMPUTING TDS

(i) Taxable contribution part will be subject to a separate accounting of interest and maintenance as the closing balance of the part (i.e., taxable portion) will earn interest next year and will be subject to TDS.

As per the current Accounting System in EPFO,

(a) Interest is credited on annual basis. However, Member accounts are maintained on monthly basis as per Para 60(2) (a) of EPF Scheme, 1952.

For the purpose of TDS, the same is further divided in to two components:

(i) Taxable

(ii) Non taxable

b) In case of a claim for the refund under para 69 or 70, interest shall be payable up to the end of the preceding date on which the final payment is authorised as per Para 60(2) (b) of EPF Scheme, 1952.

TDS RATE SHALL BE:

i) 10% if PF account is linked with valid PAN,

ii) 20% if PF account is not linked with valid PAN (i.e., TDS rate would be double)

iii) 30% under Section 195 subject to provisions of DTAA; in case of non-resident.

Further, it will be applicable to international workers as well.

CALCULATION OF TAXABLE INTEREST relating to contribution in a provident fund or recognised provided fund, exceeding specified limit has been given under Rule 9D in the Income Tax Rules, 1962.

THE THRESHOLD LIMIT SHALL MEAN:

i) Five lakh rupees, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and

ii) Two lakh and fifty thousand rupees in other cases.

LET’S UNDERSTAND WITH AN EXAMPLES; Mr. Aman is contributing Rs. 55,000/- per month in his EPF Account and his opening balance as on 31/03/2021 was of Rs. 30,00,000/- and rate of interest @7.1. % p.a.

The Calculation of Non-Taxable and Taxable Interest are as follows;

CALCULATION OF NON-TAXABLE & TAXABLE INTERESTS (EPF)
Paid in the Month of Monthly Contribution Cumulative Balance at the end of month Excess Amount /Amount over threshold Limited Interest @7.1% p.a. on balance at the end of month Non-Taxable Interest Taxable Interest
Apr-21 55,000 55,000 325 325
May-21 55,000 1,10,000 651 651
Jun-21 55,000 1,65,000 976 976
Jul-21 55,000 2,20,000 1,302 1,302
Aug-21 2,50,000 1,479 1,479
55,000 2,75,000 25,000 148 148
Sep-21 55,000 3,30,000 80,000 1,953 1,479 473
Oct-21 55,000 3,85,000 1,35,000 2,278 1,479 799
Nov-21 55,000 4,40,000 1,90,000 2,603 1,479 1,124
Dec-21 55,000 4,95,000 2,45,000 2,929 1,479 1,450
Jan-22 55,000 5,50,000 3,00,000 3,254 1,479 1,775
Feb-22 55,000 6,05,000 3,55,000 3,580 1,479 2,100
Mar-22 55,000 6,60,000 4,10,000 3,905 1,479 2,426
TOTAL 6,60,000 4,10,000 25,383 15,088 10,295

1. The amount available under non-taxable account on March 31, 2022 will be:

Sr. No. Particulars for FY 2021-22 Non-Taxable Amount (Rs.)
1 Opening Balance as on 01/04/2021 30,00,000
2 Interest Accrued on Opening Balance 2,13,000
3 Contribution made up to threshold limit FY 2021-22 2,50,000
4 Interest Accrued on the amount within threshold/ above threshold limit 15,088
5. TDS @10% where PAN is available and linked with Aadhaar. NIL
6. TDS @20% where PAN is not available and not linked with Aadhaar. NIL
7. TDS @30% in case of Non-resident (subject to DTAA) NIL
Opening Balance as on 01/04/2022 34,78,088

2. The amount available under Taxable account on March 31, 2022 will be:

Sr. No. Particulars for FY 2021-22 Non-Taxable Amount (Rs.)
1 Opening Balance as on 01/04/2021 NIL
2 Interest Accrued on Opening Balance NIL
3 Contribution made up to threshold limit FY 2021-22 4,10,000
4 Interest Accrued on the amount within threshold/ above threshold limit 10,295
TOTAL AMOUNT OF CONTRIBUTION DURING YEAR FY 2021-22 4,20,295
5. TDS @10% where PAN is available and linked with Aadhaar. 1,030
6. TDS @20% where PAN is not available and not linked with Aadhaar. NIL
7. TDS @30% in case of Non-resident (subject to DTAA) NIL
Opening Balance as on 01/04/2022 4,19,265

TOTAL AMOUNT AVAILABLE IN MR. A’S EPF ACCOUNTS AS ON 01/04/2022.

1. IN NON -TAXABLE ACCOUNT – RS. 34,78,088

2. IN TAXABLE ACCOUNT – RS. 4,19,265

3. TDS IN HIS AIS/26AS – RS. 1,030

TOTAL EPF BALANCE – RS. 38,97,353/-

LET’S CONSIDER CALCULATION FOR FY 2022-23

EPFO Issued Circular Clarifying TDS on Interest on PF Contributions in Excess of Threshold Limit

Mr. Aman is contributing Rs. 55,000/- per month in his EPF Account and his opening balance as on 01/04/2022 was of Rs. 38,97,353/-. Let’s consider rate of interest @8.1%/pa.

CALCULATION OF NON-TAXABLE & TAXABLE INTERESTS (EPF)
Paid in the Month of Monthly Contribution Cumulative Balance at the end of month Excess Amount /Amount over threshold Limited Interest @8.1% p.a. on balance at the end of month Non-Taxable Interest Taxable Interest
Apr-22 55,000 55,000 371 371
May-22 55,000 1,10,000 743 743
Jun-22 55,000 1,65,000 1,114 1,114
Jul-22 55,000 2,20,000 1,485 1,485
Aug-22 2,50,000 1,688 1,688
55,000 2,75,000 25,000 169 169
Sep-22 55,000 3,30,000 80,000 2,228 1,688 540
Oct-22 55,000 3,85,000 1,35,000 2,599 1,688 911
Nov-22 55,000 4,40,000 1,90,000 2,970 1,688 1,283
Dec-22 55,000 4,95,000 2,45,000 3,341 1,688 1,654
Jan-23 55,000 5,50,000 3,00,000 3,713 1,688 2,025
Feb-23 55,000 6,05,000 3,55,000 4,084 1,688 2,396
Mar-23 55,000 6,60,000 4,10,000 4,455 1,688 2,768
TOTAL 6,60,000 4,10,000 28,958 17,213 11,745

1. The amount available under non-taxable account on March 31, 2023 will be:

Sr. No. Particulars for FY 2022-23 Non-Taxable Amount (Rs.)
1. Opening Balance as on 01/04/2022 34,78,088
2. Interest Accrued on Opening Balance 2,81,725
3. Contribution made up to threshold limit /excess of limited in FY 2022-23 2,50,000
4. Interest Accrued on the amount within threshold/ above threshold limit 17,213
5. TDS @10% in case PAN is available and linked with Aadhaar. NIL
6. TDS @20% in case PAN is not available and not linked with Aadhaar. NIL
7. TDS @30% in case Non-Residents (subject to DTAA) NIL
Closing Balance as on 31/03/2023. 40,27,026

2. The amount available under Taxable account on March 31, 2023 will be.

Sr. No. Particulars for FY 2022-23 Taxable Amount (Rs.)
1 Opening Balance as on 01/04/2022 4,19,265
2 Interest Accrued on Opening Balance 33,960
3 Contribution made up to threshold limit /excess of limited in FY 2021-22 4,10,000
4 Interest Accrued on the amount within threshold/ above threshold limit 11,745
TOTAL AMOUNT OF CONTRIBUTION DURING THE YEAR FY 2022-23 4,55,705
5 TDS @10% in case PAN is available and linked with Aadhaar. 4,571
6 TDS @20% in case PAN is not available and not linked with Aadhaar.
7 TDS @30% in case Non-Residents (subject to DTAA)
Closing Balance as on 31/03/2023. 8,70,400

 

TOTAL AMOUNT AVAILABLE IN MR. A’S EPF ACCOUNTS AS ON 31/03/2023.

1. IN NON -TAXABLE ACCOUNT – RS. 40,27,026

2. IN TAXABLE ACCOUNT – RS. 8,70,400

3. TDS IN HIS AIS/26AS – RS. 4,571

TOTAL EPF BALANCE – RS. 48,97,426/-

LET’S DISCUSS WHEN SOME AMOUNT IS WITHDRAWN FROM EPF ACCOUNT. Mr. Aman is contributing Rs. 55,000/- per month in his EPF Account and his opening balance as on 31/03/2021 was of Rs. 30,00,000/-. Let’s consider rate of interest @7.1%pa. and he has withdrawn Rs. 3,50,000/- as advance on 31st December ,2021.

CALCULATION OF NON-TAXABLE & TAXABLE INTERESTS (EPF)
Paid in the Month of Monthly Contribution Cumulative Balance at the end of month Excess Amount /Amount over threshold Limited Interest @7.1% p.a. on balance at the end of month Non-Taxable Interest Taxable Interest
Apr-21 55,000 55,000 325 325
May-21 55,000 1,10,000 651 651
Jun-21 55,000 1,65,000 976 976
Jul-21 55,000 2,20,000 1,302 1,302
Aug-21 2,50,000 1,479 1,479
55,000 2,50,000 25,000 1,627 1,627 148
Sep-21 55,000 2,50,000 80,000 1,953 1,479 473
Oct-21 55,000 2,50,000 1,35,000 2,278 1,479 799
Nov-21 55,000 2,50,000 1,90,000 2,603 1,479 1,124
Dec-21 55,000 2,50,000 2,45,000 2,929 1,479 1,450
Withdrawn -1,05,000 -2,45,000
Jan-22 55,000 2,00,000 1,183 1,183
Feb-22 55,000 2,50,000 5,000 1,509 1,479 30
Mar-22 55,000 2,50,000 60,000 1,834 1,479 355
TOTAL 6,60,000 2,50,000 60,000 20,649 16,419 4,378
NON-TAXABLE CONTRIBUTION ACCOUNT AND TAXABLE CONTRIBUTION ACCOUNT
Sr. No. Particulars for FY 2021-22 Non-Taxable Amount (Rs.) Taxable Amount (Rs.)
1 Opening Balance as on 01/04/2021 30,00,000
2 Interest Accrued on Opening Balance 2,13,000
3 Contribution made up to threshold limit /excess of limited in FY 2021-22 2,50,000 60,000
4 Interest Accrued on the amount within threshold/ above threshold limit 16,419 4,378
5 TOTAL AMOUNT OF CONTRIBUTION DURING THE YEAR FY 2021-22 4,79,419 64,378
6 TDS @10% in case PAN is available and linked with Aadhaar. NIL 438
7 TDS @20% in case PAN is not available and not linked with Aadhaar. NIL
8 TDS @30% in case Non-Residents (subject to DTAA) NIL
Closing Balance as on 31/03/2022. 34,79,419 63,941

 

TOTAL AMOUNT AVAILABLE IN MR. A’S EPF ACCOUNTS AS ON 31/03/2022.

1. IN NON -TAXABLE ACCOUNT – RS. 34,79,419/-

2. IN TAXABLE ACCOUNT – RS. 63,941/-

3. TDS IN HIS AIS/26AS – RS. 438/-

TOTAL EPF BALANCE – RS.35,43,359/-

Note: Amount withdrawn during the year was Rs. 3,50,000/-

DISCLAIMER: the article produced here is only for information and knowledge of readers. In case of necessity do consult with tax professionals.

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6 Comments

  1. ysr says:

    In May 2021, I borrowed a refundable EPF loan amounting to 4 lakhs. I am seeking clarification on whether the refunded loan falls within the taxable or non-taxable category. It’s worth noting that this withdrawal occurred prior to the issuance of the relevant circular.

  2. amit says:

    Whether the refund of PF loan (or refundable PF advance) will also be added to employee contribution for the purpose of calculating 2.5 lakh contribution limit?
    Won’t it be a case of double taxation since original contribution & interest was taxed at 0% as per prevailing tax rate. But now counting this refund as fresh contribution, its future interest will be considered taxable unlike earlier.

  3. MANISHA MOHTA says:

    Well explained however, in calculating threshold of Rs. 250000, please confirm whether employer contribution will also be considered. In your example and table given, only employee contribution is mentioned hence. Please revert for more clarity.

  4. Iyengarvsatish says:

    Sir

    As on Date epfo office software not updated to deduct tds

    I am running pillar to post in epf office Chennai

    Tambaram

    End of the day they have rejected the settlement on fictions grounds

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