1. The Government had capped the tax-free interest earned on provident fund contribution by employees to a maximum of Rs. 2.5 lakh in a year vide Budget 2021-22.
1.1 Section 10(11) and 10(12) of the Income Tax Act provides an exemption for the statutory provident fund and recognized provident fund respectively. Till 31st March 2021, the interest credited every year in the Employee provident fund account (EPF) was exempt from tax. The deposits in EPF were under the Exempt, Exempt, Exempt (EEE) tax category. Thus, an employee was not liable to pay tax at all three levels – investment, earning, and withdrawal.
1.2 A provision had been inserted to Sections 10(11) and 10(12) vide Finance Bill 2021. Accordingly, no exemption shall be available for the interest income accrued during the previous year in the recognized and statutory provident fund to the extent it relates to the contribution made by the employees over Rs. 2, 50,000 in the previous year on or after the 1st day of April 2021. The tax shall be computed in such manner as may be prescribed.
1.3 The threshold limit had been increased to ₹5 lakhs per annum in the General Provident Fund (GPF)
2. Key Points of the Amendment vide Finance Bill 2021 –
(a) This interest taxability shall be applicable only for the contribution made on or after April 1, 2021.
(b) The employee’s principal contribution, employer’s contribution, entire interest earned on employers’ contribution, and interest earned by the employee till 31st March 2021 are not taxable
(c) The interest income earned on excess contribution will be taxable only in those cases where the employees’ annual PF contribution exceeds Rs. 2, 50,000, or Rs 5,00,000/- as the case may be.
(d) The contribution to PPF is already restricted to Rs. 1.5 lakhs p.a. currently, so this amendment will not have any impact on PPF contribution.
Refer articles Taxability of Interest on Excess PF Contribution-New Threshold Limit & Manner of Tax Computation dated 01.05.2021 and Taxability of Interest on Excess PF Contribution dated 11.02.2021for further details.
3. Rule for taxable Interest on Excess PF Contribution The CBDT has inserted Rule 9D vide Notification no. 95/2021 dated 31st August 2021 for calculation of interest on PF contribution
3.1 The newly inserted Rule 9D has specified that separate accounts within the PF Accounts shall be maintained clearing segregating the taxable and non-taxable contributions to PF along with interest thereon.
3.2 As per Rule 9D, for calculation of taxable interest, the following separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years.
4. Non-taxable Contribution Account Non-taxable contribution account shall be the aggregate of the following –
(a) closing balance in the account as on 31st day of March 2021 that is opening balance as on 01 Apr 2021.
(b) Any contribution made by the person in the account during the previous year 2021-2022 and subsequent previous years up to the threshold limit of non-taxable contribution
(c) Interest accrued on para 4 (a) and 4(b) above .
5. Taxable Contribution Account Taxable Contribution Amount shall be the aggregate of the following: –
(a) Contribution made by the person in a previous year in the account during the previous year 2021-2022 and subsequent previous years, which is more than the threshold limit
(b) Interest accrued on contribution made more than the threshold limit.
6. The threshold limit shall mean – Five lakh rupees in the case of the General Provident Fund available only for government employees in India and where employers do not contribute and Two lakhs and fifty thousand rupees in other cases.
7. Illustration: Mr. Sanjeev is a salaried employee and his salary details and statutory contribution in Employee Provident Fund (EPF) & Voluntary contribution are as follows: –
| Sl | Particulars | FY 2021-22 |
| (a) | Opening Balance as of 01st Apr 2021 ( Closing Balance on 31st March 2021) | Rs 50,00,000 |
| (b) | Basic + DA | Rs. 1,00,000 pm |
| (c ) | Contribution in Voluntary PF | Rs. 18,000 pm |
| (d ) | Statutory Contribution | Rs. 12,000 pm |
| (e) | Rate of Interest | 8.5% per annum |
7.1 PF Interest Calculation for FY 2021-22
(Amount in Rupees)
| MMYY | Monthly Contribution | Cumulative balance available at the end of the month | Interest @ 8.5% pa on balance at the end of the month. | Non-Taxable | Taxable |
| Apr 2021 | 30000 | 30000 | 213 | 213 | |
| May 2021 | 30000 | 60000 | 425 | 425 | |
| June 2021 | 30000 | 90000 | 638 | 638 | |
| July 2021 | 30000 | 120000 | 850 | 850 | |
| Aug 2021 | 30000 | 150000 | 1063 | 1063 | |
| Sep 2021 | 30000 | 180000 | 1275 | 1275 | |
| Oct 2021 | 30000 | 210000 | 1488 | 1488 | |
| Nov 2021 | 30000 | 240000 | 1700 | 1700 | |
| Dec 2021 | 30000 | 250000 | 1771 | 1771 | |
| 270000 | 142 | 142 | |||
| Jan 2022 | 30000 | 300000 | 2125 | 1771 | 354 |
| Feb 2022 | 30000 | 330000 | 2338 | 1771 | 567 |
| Mar 2022 | 30000 | 360000 | 2550 | 1771 | 779 |
| Total | 16578 | 14736 | 1842 |
7.2 Amount to be transferred to Non- Taxable Account & taxable Account as of 01st April 2022
| Sl | Particulars | Non-Taxable Account | Taxable Account | Total |
| (a) | Opening Balance as of 01 Apr 2021 | 50,00,000 | 50,00,000 | |
| (b) | Contribution made up to threshold limit / excess of limit in 2021-22 | 2,50,000 | 1,10,000 | 3,60,000 |
| (c ) | Interest accrued on the amount within threshold / above threshold limit | 14736 | 1842 | 16,578 |
| Closing Balance as on 31 Mar 2022 | 5264736 | 111842 |
7.3 Rs. 1842/- is to be added to the employee’s taxable income and tax will be payable by him according to his tax slab.
TDS of Rs. 184/- (@ 10% on 1842/-) will be deducted under section 194 A by EPFO and the same will be reflected in his Form 26AS as TDS deducted.
The balance that is available at the end of the year 2021-22 will be the opening balance for the year 2022-23.
8. The notification issued by CBDT has finally put to end the ambiguity which arose with the introduction of taxation of interest on provident funds with contributions above the specified threshold.
Disclaimer: The calculation is solely based on the author’s interpretation & understanding of the provision. The suggestions and feedback are always welcome.
The author can be approached at caanitabhadra@gmail.com
(Republished with Amendments)
Author Bio
I understand a person need to pay tax on interest earned in EPF account if not working (non-contribution period). Question is do we have pay tax on on BOTH “Interest earned on Employee contribution” as well as on “Interest earned on Employer contribution” OR only for “Interest earned on Employee contribution”? Thank You.
I am retired person from public sector and left my PF with the employer. I got an interest of about 5 lac in the FY-2022-23 and TDS @ 10% was deducted on this amount by the employer. I have paid the tax after considering it as my income under provision of 139(1). Now I have to fill in 139(8A). Kindly let me know in which proviso (1st / 2nd) and which clause (11 or 12) of section 10, I should fill it as income. As it is coming as information mismatch campaign on compliance portal.
Kindly advise.
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.
What will the position of employers contribution in the year FY 2021-22 where employers contribution is in excess of Rs. 250,000/- and interest thereon. Is excess contribution and interest thereon is taxable. If yes where will it be shown in the ITR. Please help.
The provision is not applicable on employer’s contribution .
Employer contribution in excess is not taxable in the hands of the employee.
I am retired from PSU on attaining the age of 60 years. now i am working with a pvt co and PF contribution is being deposited. The PSU, where i worked, is deducting the income tax on the inerest earned on PF post retirement. will i get it refund and under which section
Most of the employer have calculated interest @8.5% but June 2022 notification tells that it should be interest @8.1% for Apr21-Mar22, and they have already deposited 10% TDS from that taxable interest part, now they should refund this extra TDS cut.
Tax on Interest from Excess PF is applicable at slab rate .
In case , employer has deducted on excess amount , you can enter correct interest amount . Automatically , the refund amount will be calculated by the system
In the example given in the article, Interest on opening Balance of 50,00,000 is not calculated. I think that is to be calculated and that portion will be exempt.
Interest till 31st March 2021 is not to be calculated as the newly introduced provision itself is applicable w.e.f. 01 .04.2021.
If an employee contributes morethan 250000/-, then interest on excess will taxable in his hands, what is the position, if employer contributes morethan 250000/-, whether interest on excess deposit by employer will be taxable in the hands of the emplyee.
i. How to show the taxable interest on EPF contribution in the ITR-2 form for A.Y.2022-23 and how to claim TDS not deducted and not shown in 26AS so far by the EPFO?
2. Will interest on the opening balance of FPF on 31.3.21 during F.Y.2021-22 is to added in the closing balance on 31.3.22 under non taxable head or not?
(a) Tax on Excess PF Contribution is to be reported in the schedule ” Income from other sources “>
Gross income chargeable to tax at normal applicable rates. >
Interest accrued on contributions to provident fund to the extent taxable as per first proviso to section 10(11).
For GPF Select second proviso to sec 10(11).
(b) If Tax not deducted and not appearing in 26AS , there is no question of claiming TDS .
(c ) Nothing is required to be done with opening balance of PF ( Non Taxable Account)
Do we need to calculate and pay IT in our ITR filing for FY 2021-2022 ( AY 2022-2023) incase contribution is in excess of 250000
Yes , Interest on excess contribution is to be added in taxable income and pay tax on it. ( Generally PF trust / EPFO Credit or communicate the interest on excess contribution before 31st July of the following FY ). If they have not done so , we need to calculate & pay tax )
TOTAL CONTRIBUTION in my GPF is 3 LACS in 2021-22 AND I DEPOSIT 260000/- AS REFUNDABLE GPF WHICH I WITHDRAW EARLIER. NOW I HAVE RECEIVED A NOTICE FOR TAXABLE SUBSCRIPTION AMOUNT OF 60000/- FROM ACCOUNTANT GENERAL . IS REFUNDABLE GPF ALSO TAXABLE
Interest on total Contribution > Rs 5 lakhs in GPF is subject to tax ( The reason for contribution can be fresh investment or repayment of refundable loan)
If some one is contributing both PPF and GPF. In this scenario whether taxable contribution to PF will be computed based on the cumulative contribution of both funds scheme together or contribution of individual fund scheme.
PPF and GPF are to be considered as an individual investments and not required to be accumulated for the purpose
I retired in the year July ,3020 from BEL, Bangalore. I have left my PF there only. Should I pay tax on my PF interest
I have send the reply mail to you along with the details of relevant provisions.
please clarify,
In case of below Rs.250000 yearly self contribution, should I declare EPF yearly interest as exempt income head while filing the ITR
It is not required to be reported .
This is a very clear article, the illustrations are great.
Thank you.
Thank you so much for your humble comment .
If the government wants to tax interest income accrued from Voluntary contribution to PF then it’s correct. But levying tax on accrued interest earned out of statutory contribution is incorrect and arbitrary.
Then the government should give option to employees to reduce below the statutory rate of contribution so that atleast the employees will get higher take home pay.
PF contribution made at statutory rate should never be taxed. The logic of 2.50 lakhs cut off is against the constitutional principles as all statutory contribution are made in compliance with laws. So the government should review this aspects and introduce tax only on Voluntary contribution made by employees in excess of the statutory rates
Ms. Anita,
If you can clarify what happens in my case?
1. I left my job in 2018 aug. I was 52 then, now 55.
Will I still earn PF interest till 58 even though there has been no contribution?
2. Is any of the interest earned taxable?
Thank you.
Your inoperative accounts will earn interest till 36 months from the day you left job . After that, the account will become inoperative and EPFO will stop paying interest on it.
Interest earned post retirement will be taxable in your hand.
This is because the exemption is available only to an employee
This is not correct. Effective from April 2016, EPFO does provide interest on even Inoperative Accounts. Such interest earned (on both Employee’s as well as Employers contribution. Question is how do we report this interest in ITR? Earlier one could report as Any other income under “Income from other sources” section. However, now it has 4 categories like “Interest accrued on contributions to provident fund to the extent taxable as per first (or second) proviso to section 10(11) (or 10(12)”. Not sure if we have put these taxable interest under these categories. Can you please check and guide?
You need to entered details in first proviso of sec 10(11) if not a Govt employee
For Govt employee – it’s second proviso of sec 10(11)
10(12) is for PPF , which is not taxable
How much TDS will be made on interest on PF post retirement
It is observed total interest earned for the year is deducted as TDS for 2021 -22 as per AIS
What I need to do
10%TDS shall b deducted irrespective of the fact whether employee is in service or retired.
Sir
we declared interest for EPF is 20% instead of 8.5%
in excess of 9.5% is taxable.
how much tax deduct for 5%,20% , 30% slab employees and how much deduct for no PAN cases
Being employer, please tell weather tax will be debited from monthly salary as per his/her tax slab or it should be 10% on interest u/s 194 debited from PF account itself like TDS on FD interest.Please guide.
It should be 10% like TDS on FD interest.
Is there be any tax on the amount of closing balance as on 31/03/2021
No,
It is taxable w.e.f. 01.04.2021 and the balance as on 31st March 2021 is not subject to tax
Kindly give the formula/table how to calculate excess intrest ammount more than 5lacs for income tax returns
Formula is the same as given above . Only the amount goes to taxable account will be the contribution more than Rs 5 lakh in place of Rs 2.5 Lakhs
Why such orders issued eleventh hour of Financial year? Who will be responsible for lapse?
Mam
Suppose my contribution is 6 lakh in GPF in 2021-22.
Interest on 1 lakh ll be taxable.
In next year ie 22-23 , again contribution is 6 lakh in GPF.
Now tell me wheather tax ll be calculated on 1 lakh or 1 lakh plus the interest on 2021-22.
Tax will be on opening balance of taxable account that will include interest also .
Tax will be on interest on Rs 1 Lakh + Interest
Sir
In notification it is mention in clause (2)
(2) They shall come into force on 1st day of April, 2022.
so can we deduct tax on GPF interest(more than threshold limit) for F.Y. 2021-22 also
Yes ,
Excess contribution of PF is subject to tax for FY 2021-22 onwards .
Notification for maintaining Taxable & Non Taxable account (for interest accrued in FY 2021-22 ) is w.e.f 01.04.2022
Since the interest of FY 21-22 wil not be posted in time by 31st july by EPFO are we supposed to do our own calculation and pay taxes for FY 21-22 (AY 22-23)?
Or the tax will be paid in AY 23-24 onwards ?
Tax on excess PF Interest for FY 21-22 is to be paid in same year , irrespective of the fact whether interest is credited or not by the EPFO. ( It is taxable on accrued basis)
Hello,
I have the same question. EPFO never provides the interest in time for ITR filing. They are minimum 6 months late each year. How is the common man supposed to compute interest (nevermind the question of having to pay before the interest hits the account ?
what is the limit for GPF for central government employees….kindly clarify ?
Time limit for what ?
Did not get your query
For GPF , the limit is Rs 5 Lakhs .
Will tax be calculated as per slab on 111842 or 1842 for the first year ? and how the tax will be calculated from Second year onwards . please elaborate the example.
Read more at: https://taxguru.in/income-tax/rules-taxable-interest-pf-contribution.html
Copyright © Taxguru.in
TDS will be deducted @ 10% by PF . but ultimately an individual has to pay tax @ Slab rate . It will be same as in case of tax on Bank Interest
Dear Ma’am
VPF will also be counted in 2.5L limit .
Geeta
Yes, VPF is also included in 2.5 lakhs limit
Hi,
My contribution in EPF is more than INR 2.5 Lacs.
Now I wish to open a PPF account.
Will the interest on my contribution in PPF be taxable as i am already having EPF account with approx 3 lacs annual contribution.
Please guide me.
Contribution to PPF is independent from that of EPF.. It won’t be taxable for having excess contributed amount in EPF
Dear Ma’am
Pls correct me if I am wrong , VPF is also included in 2.5L limit as it is being contributed by employee.
Geeta
Thank you and the illustrations makes things clear. However, as the contribution to PF for the month is done on the last day of the month and paid to the Fund / EPFO next month only, there will be a lag of one month in calculation of interest. This would mean that interest for the month of March 2022 in above illustration i.e. Rs 779 will not count for tax for FY 2021-22. This will leave Taxable interest for the FY 2021-22 of Rs 1063.
The notificatio also specifies that the contribution reduced by withdrawal. Whether withdrawals are to be reduced from the contribution for calculation of taxable interest
What will be the opening balance for Apr 2022 ? My understanding is it will be 5264736 + 111842= 5376578. And this will be the non taxable amount for Apr 2022, assuming tax has been paid for 1842. Please advice
What is the effect of withdrawal on the non taxable or taxable pf accounts’ on interest calculation & its taxability?
Hi,
I have changed my job after 2 yrs of service now due to some issues in my current company I m unable to transfer my previous company epf where I worked for 2 yrs to my current company epf. Now I want to know do I have to pay taxes on the old epf account interest in my ITR next year incase I m unable to transfer that amount?
Please clarify, will the interest also calculated on the opening balance of 1/4/2022 + contribution excess of 2.5 lakh in the FY 22-23 or only on 22-23 excess contribution
The interest will certainly be calculated and paid on the opening balance as well.
As long as a tax on interest is a concern, it shall be only on excess contributed during the year and not on opening balance in FY 22-23 or subsequent years ( This is my view, nowhere it is specified in a clear manner)
Dear Madam, As per the section 2b of the notification https://taxguru.in/income-tax/rule-9d-calculation-taxable-interest-pf-contribution.html, i believe the eligible taxable interest for FY22-23 will be the sum of interest on Rs. 111842(FY21-22 taxable amount closing balance) + taxable interest earned over threshold contribution amount for FY22-23 and so on for subsequent years. Could you please advise your understanding in this regard?
You are right opening balance in taxable PF account and current year taxable part ( intt on excess contribution) will b subject to tax in current year
What happens to employer’s contribution and interest on it? Does it go to non taxable account post 1st Apr 2021?
Yes, The Employer’s contribution and interest thereon will go to a non-taxable account.
Please clarify, whether interest is also calculated on Rs. 111,842 in the FY 2022-23. Thanks
Agreed
Thanks a lot for your valuable feedback.
Requested the moderator to replace the amended version of the article.
Inconvenience is highly regretted
In the PF interest calculation [Refer 7.2] , interest on excess over 2.5 lakhs is taxable, so for the month of Jan to Mar, interest of Rs.1771/- in each month should be exempted because it belogns to the contribution upto 2.5 lakhs.
Totally agreed with you sir, Interest on contribution upto Rs 250000 is not taxable, interest on contribution over & above 250000 is taxable. So above example has to be rectified.
Totally agreed with you sir. Interest on Contribution upto Rs. 250000 is not taxable, so interest on contribution over & above 250000 is taxable. So in this example In Jan interest on only 50000 (30000+20000) contribution is taxable i.e 354, same in feb & mar on 80000 & 110000 i.e 567 & 779 respectively. So Total Taxable interest is 142+354+ 567+779 =1842, not 7155 as mentioned above in artiicle.