Till FY 2020-21 contribution to Recognised Provident fund (RPF) was eligible for EEE (Exempt- Exempt- Exempt)
This EEE implied that full exemption from tax is given on
(1) investment in PF (u/s sec 80C),
(2) Interest on PF (u/s 10 upto 9.50%) and
(3) withdrawal of PF (u/s 10(12) subject to 5 year service condition)
However through Finance Act 2021 (i.e from FY 2021-22), an amendment has been brought through which interest on employee’s contribution in excess of Rs 2,50,000 per annum will be taxable.
For example: If an employee has contributed Rs 4 Lacs in PF account then interest will be applicable on interest earned on Rs 1.50 Lacs (i.e 4 Lacs -2.50 lacs).
For method of computation of interest, Rule 9D has been inserted via Notification No. 95/2021-Income Tax Dated: 31st August, 2021.
This Rule 9D provides for segregation of PF account balance into taxable and non-taxable portion within same account.
The components of taxable and non-taxable portion are as below:
| Non-Taxable Portion | Taxable Portion |
| (i) closing balance in the account as on 31st day of March 2021; | |
| (ii) 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 account; and | (i) contribution made by the person in a previous year in the account during the previous year 2021-2022 and subsequent previous years, which is in excess of the threshold limit (for RPF limit is Rs 2.50 Lacs); and |
| (iii) interest accrued on sub- clause (i) and sub- clause (ii) | (ii) interest accrued on sub- clause (i), |
| as reduced by the withdrawal, if any, from such account; | as reduced by the withdrawal, if any, from such account |
We can understand the above with the help of following example:
Example) Say for FY 2021-22 Mr X contributes Rs 30,000 per month in his PF account. In this case his annual contribution is Rs 3,60,000 (i.e greater than Rs 2.50 Lacs) and hence he need to pay interest on PF contribution of Rs 1.10 lacs (Rs 3.60 Lacs – Rs 2.50 lacs).
On detail calculation we can see that taxable interest amount will be Rs 1063.
| Month | Employee’s PF contribution for Taxable Interest calculation | Interest till end of year | Exempt Interest | Taxable Interest |
| April | 30,000.00 | 2,337.50 | 2,337.50 | – |
| May | 30,000.00 | 2,125.00 | 2,125.00 | – |
| June | 30,000.00 | 1,912.50 | 1,912.50 | – |
| July | 30,000.00 | 1,700.00 | 1,700.00 | – |
| August | 30,000.00 | 1,487.50 | 1,487.50 | – |
| September | 30,000.00 | 1,275.00 | 1,275.00 | – |
| October | 30,000.00 | 1,062.50 | 1,062.50 | – |
| November | 30,000.00 | 850.00 | 850.00 | – |
| December | 30,000.00 | 637.50 | 212.50 | 425.00 |
| January | 30,000.00 | 425.00 | – | 425.00 |
| February | 30,000.00 | 212.50 | – | 212.50 |
| March | 30,000.00 | – | – | – |
| Interest on current year contribution | 14,025.00 | 12,962.50 | 1,062.50 | |
At end of FY 2021-22 his taxable portion of PF will be as below:
| Particulars | Employee’s Taxable Portion of PF Balance |
| Opening Balance at beginning of Financial Year | – |
| Fresh contribution by employee during the year | 110,000 |
| Interest on PF | 1,063 |
| Closing Balance at end of Financial Year | 111,063 |
Now say Mr X contributes Rs 31,000 per month for FY 2022-23 (i.e next year).
In such a case his annual contribution will be Rs 3,72,000 (Rs 31,000 X 12) and interest will be taxable on Rs 1,22,000 (i.e 3.72 Lacs -2.50 Lacs) along with on opening balance of taxable portion of PF (i.e Rs 1,11,063).
For FY 2022-23 his interest calculation will be as below:
| Month | Employee’s PF contribution for Taxable Interest calculation | Interest till end of year | Exempt Interest | Taxable Interest |
| April | 31,000 | 2,415 | 2,415 | – |
| May | 31,000 | 2,196 | 2,196 | – |
| June | 31,000 | 1,976 | 1,976 | – |
| July | 31,000 | 1,757 | 1,757 | – |
| August | 31,000 | 1,537 | 1,537 | – |
| September | 31,000 | 1,318 | 1,318 | – |
| October | 31,000 | 1,098 | 1,098 | – |
| November | 31,000 | 878 | 878 | – |
| December | 31,000 | 659 | 43 | 616 |
| January | 31,000 | 439 | – | 439 |
| February | 31,000 | 220 | – | 220 |
| March | 31,000 | – | – | – |
| Interest on current year contribution | 14,493 | 13,218 | 1,275 | |
| Interest on Opening Balance | 9,440 | |||
| Total PF interest taxable | 10,715 | |||
At end of FY 2022-23 his taxable portion of PF will be as below:
| Particulars | Employee’s Taxable Portion of PF Balance |
| Opening Balance at beginning of Financial Year | 111,063 |
| Fresh contribution by employee during the year | 122,000 |
| Interest on PF | 10,715 |
| Closing Balance at end of Financial Year | 243,778 |
So for FY 2022-23, taxable interest on PF would be Rs 10715 and balance of taxable portion of PF will be 2,43,778.
Such interest will be taxable under the head Income from Other sources and not under the head salaries. Applicable TDS u/s 194A @ 10% will be deducted on amount of interest by EPFO (Employees Provident Fund Organization).
The rate of interest on PF for last few years is given below:
| Financial Year | Rate of Interest p.a. |
| 2021-22 (proposed) | 8.50% |
| 2019-2020 to 2020-21 | 8.50% |
| 2018-2019 | 8.65% |
| 2017-2018 | 8.55% |
| 2016-2017 | 8.65% |
| 2015-2016 | 8.80% |
| 2013-2015 | 8.75% |
| 2012-2013 | 8.50% |
| 2011-2012 | 8.25% |
| 2010-2011 | 9.50% |
| 2005-2006 to 2009-2010 | 8.50% |
Beside it excel utility to compute interest on taxable PF portion is also attached.
This will surely help all the salaried people to calculate taxable amount of Interest on PF and also to take decision as to how much amount should be contributed by way of VPF (Voluntary provident fund).
Author Bio
Normally interest will be accrued under RPF.
ITR require interest accrued under two heads:
i) interest accrued under first proviso of Sec10(12)
ii)interest accrued under second proviso of S10(12).
Kindly explain the difference.
TDS deducted by EPFO has to be reflected in Form 26AS and AIS? it has not happened so far (July 15). If we calculate interest and TDS and file based on calculations, CPC will reject the return due to “TDS mismatch”. Please guide how to file without EPFO completing the interest, TDS updates. Thank you
Well Explained.
A clear guidelines to EPFO / PF Trust for methodology of tax component is still awaited from the Government .
EPFO/Trust need to keep track of tax on accrued interest so that there won’t be tax again at the time of final withdrawal
In case of PF trust, How the TDS will be deposited? . because interest is accrued and not having any cash to pay the TDS in hand of trust.