Tax on income from EPF
After Budget 2021, interest on an employee’s contribution to an EPF account above Rs 2.5 lakh during a financial year is taxable in the hands of the employee. This interest is also subject to tax deducted at source (TDS).
Key Points in brief:
a) Employee’s Contribution:
- Up to Rs. 2.5 lakhs: Interest earned on this portion is tax-free.
- Above Rs. 2.5 lakhs: Interest earned on the amount exceeding Rs. 2.5 lakhs is taxable.
b) Employer’s Contribution:
- Up to 12% of basic salary: Interest earned is tax-free.
- Above 12% of basic salary: Interest earned is taxable.
Withdrawal:
- Within 5 years of service: Taxable at a rate of 10% (20% if PAN is not submitted) if the withdrawal exceeds Rs. 50,000.
- After 5 years of service: Generally tax-free, but certain conditions apply.
Important Considerations:
- TDS: Tax Deducted at Source (TDS) is applicable on interest income exceeding Rs. 5,000.
- PAN: Linking your PAN to the EPF account is crucial to avoid higher TDS rates.
- Surcharge and Cess: Additional taxes like surcharge and cess might apply based on your total income.
Disclaimer: Every effort has been made to avoid errors or omissions in this material. In spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition. In no event the author shall be liable for any direct, indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information.
