Employee Provident Fund (EPF) is an inherent salary component of almost all employees. EPF as a retirement scheme makes sure that a portion of your earnings is saved for retirement. This fund is monitored by the EPFO, which is the Employees Provident Fund Organisation.
Who is it applicable to?
Any organization with more than 20 employees needs to get registered under EPFO. It is mandatory for employees with a salary of up to ₹15,000 to contribute towards EPF.
Components of EPF contribution
You need to make a minimum monthly contribution of ₹1,800 or 12% of the salary (Basic Salary + Dearness Allowance), whichever is lower. And the employer needs to make a contribution of the same amount as well.
So, for example, if you contribute ₹1800 towards your EPF, your employer also contributes ₹1800, and hence, the total monthly contribution would be ₹3600.
Now, similar to any other investment, there are three transactions that will happen.
Contribution
Interest on the invested amount
Withdrawal/Maturity
The taxability on these transactions will differ based on whether it was a component of the employee’s contribution or the employer’s contribution.
Contribution towards EPF
Employee’s contribution: You can claim a deduction of up to ₹1,50,000 u/s 80C.
Employer’s contribution: The employer’s contribution towards EPF is not taxable, which means the amount would be deducted from your taxable salary. However, if the total contribution made by the employer towards retirement funds including EPF, NPS and Superannuation fund exceeds ₹7.5 lakhs in a year, then the contribution on excess of ₹7.5 lakhs will be taxable.
Interest from EPF
Interest received from EPF is exempted from taxes. However, if your contribution, that is, the employee’s contribution exceeds ₹2.5 lakhs in a year, then the interest becomes taxable as ‘income from other source’.
This limit extends to ₹5 lakhs in case of government employees.
The interest rate is 8.25% p.a. for FY 2023-24. The interest earned is deposited to your EPF account on 1st April of every year.
EPF Withdrawal
EPF withdrawal before 5 years of employment
Employer’s contribution: If you withdraw the amount from your EPF account before 5 years, the employer’s contribution becomes entirely taxable.
Employee’s contribution: This portion remains tax-free even if you withdraw funds from the EPF account before 5 years. But, if you had claimed a deduction u/s 80C against this, the amount gets added to your taxable salary.
Interest on both employer as well as employee contributions becomes taxable as ‘income from other source’.
TDS at the rate of 10% is applicable if the amount withdrawn is more than ₹50,000.
EPF withdrawal after 5 years of employment
If you withdraw funds from your EPF account after 5 years of service, the entire maturity amount is exempted from taxes. If you had switched employers, the 5-year period here includes the tenure with the previous employer as well.
In the context of a person employed in a private company, both employer and employee contribute to EPF under EPFO. Two questions in relation to how EPF Interest on employee contributions exceeding 2.5L has to be shown (said person has not made any withdrawls and continues to be employed with the same employer - so this is just accruing in his EPF account):
Does this need to be shown every year in the ITR (as opposed to only at the time of withdrawl/transfer/termination)
In the ITR, Income from Other Sources has several options for showing this interest, which section should this be shown in Section 10(11) or 10(12). I believe it should 10(12) Privsio 1 is this correct?
@S_Gupta The only entry I see in the form 16 for provident fund is in 80C. I suppose this is for employee contribution. But I know the employer also contributes as it is in the EPF passbook.
Assuming you and your employer both contribute to the EPF. And assuming you (employee) contribute more than 2.50 Lakhs in a previous year, then the interest component on the amount exceeding 2.50 Lakhs will be taxable u/s 10(11) first proviso.
From the next year onwards, on this excess amount over 2.50Lakhs and the interest thereon will become principal for next year. and this corpus will generate interest every year. Then this interest will be taxable u/s 10(12) first proviso.
But, where do we report this income in ITR? How is this that the extra contribution is not shown anywhere and no section is available for claiming a deduction for it?
Yes I had seen that video before I posted. My impression is that video is wrong. If you see the comments there are people saying the same. There are multiple similar videos in youtube. I don’t think any of them are reliable. Are you a CA?
I’m no CA, but to the best of my knowledge you don’t need to claim a deduction for it - a deduction is only if it is first included in your total income. In this case I don’t think it is. So there is no tax incident on it for you to claim a deduction on it. However please note, if your case is where you exceed the 7.5L threshold (employer contribution to EPF + NPS + Super Annuation), then the situation changes.
@S_Gupta A kind request: If you intend to continue on this employer contribution part, can you please create a separate thread for it, so that this one doesn’t get hi-jacked. I just want this thread to be about interest on employee contribution on section 10(11) and 10(12)
What should be the deductions under section 80C?
Rs. 72,000 or Rs. 71,700?
The difference is very little. But, I want to know the correct accounting methodology. Thanks @Shrutika_Shah
PS (My old query below, before I made the above table!):
While calculating deductions (employee contribution to EPF) under 80C, should we calculate the employee contributions for the salary months of Mar2022 to Feb2023 i.e. EPFO passbook from 01-Apr-2022 to 31-Mar-2023? as the contribution for Mar2022 will be credited in Apr2022 in the EPFO passbook?
OR
should we calculate the employee contributions for the salary months of Apr2022 to Mar2023 i.e. EPFO passbook from 01-May-2022 to 30-Apr-2023? as the contribution for March2023 will be credited in Apr2023 in the EPFO passbook? @Sam1
Request clarity on interest earned on PF, while not in employment; understand, per IT provisions, interest earned, while not in job, is taxable.
However, interest for a particular FY credited either at the end of calendar year or even later during the next FY e.g. taxable interest earned during FY 2022-23 will be known only by Dec 2023 or later. Few questions:
Does a person expected to include taxable PF interest in the earnings? if yes, how to manage under this situation, when earned taxable interest is not known by the due date for filing ITR?
Kindly clarify, considering following cases: two persons, both leave job in Aug 2022, while one gets job back in Oct 2022, other manages an employment only by Nov 2023. Assuming PF applicable in both employment.
Under which Provisio of 10(12)? I suppose it is Provisio 1?
Usually, the interest paid for the FY is not available yet past the due date for filing. So do we file the prior FY interest instead of the FY for which the AY is being done. Kind of like taking it as interest for prior FY is paid out in this FY, so showing that. (For Example: FY23 interest is not yet updated in the passbook. FY22 interest is updated. So we show FY22 in FY23 and FY23 in FY24 and so forth?). If we are supposed to show FY23 itself, then we’ll have to compute the interest and offer that, but later when EPFO updates the passbook with the interest, it may be different from what we offered.
My current organization has no option for EPF. But my previous organization had EPF. Will my EPF account become inactive after 3 years from last contribution to the EPF account? Whether interest earned during these 3 years (no contribution from employee & employer) will be taxable?
Whether I can withdraw my EPF now (I had nearly 10 years of continuous services) or should I withdraw only after my retirement to avoid any kind of taxes?
Yes, the PF account becomes dormant after 3 years of no activity. Withdrawal of funds from PF after 5 years of continuous service is exempt. Hence you can withdraw funds without any taxability.
What will be the 80C and 80CCC deduction benefit calculations from PF?
Is it 4500 X 12 = 54,000 (when the employee has no additional PPF)?
Or is it a calculation like below?
4500 [Employee Contribution] + 4500 [Employer Contribution] = 9000
9000 X 12 = 1,08,000
As 80C, the 80CCC Maximum Deduction is 150,000.00.
So for the above example, if the same employee wants to get a full Rs 150,000.00 deduction benefit, then how much does he need to invest in PPF in the above scenario?
The interest rate is 8.25% p.a. for FY 2023-24. The interest earned is deposited to your EPF account on 1st April of every year.
