Employee Provident Fund (EPF) is a fundamental component of nearly every employee’s salary, ensuring a portion of earnings is saved for retirement. Administered by the Employees Provident Fund Organisation (EPFO), EPF is applicable to organizations with over 20 employees, with mandatory contributions for employees earning up to ₹15,000.
EPF contributions entail a minimum monthly contribution of ₹1,800 or 12% of the salary (Basic Salary + Dearness Allowance), whichever is lower, with employers matching this contribution.
Tax implications vary for employee and employer contributions. Employee contributions are deductible up to ₹1,50,000 under section 80C, while employer contributions are exempt from tax, provided the total employer contributions across retirement funds do not exceed ₹7.5 lakhs annually.
Interest earned on EPF contributions is tax-exempt, with exceptions if employee contributions exceed ₹2.5 lakhs annually.
Withdrawals made before 5 years of employment render employer contributions taxable. However, employee contributions remain tax-free, though previously claimed deductions under section 80C may be added to taxable salary. TDS at 10% applies if withdrawals exceed ₹50,000.
Withdrawals post 5 years of employment are entirely tax-exempt. This 5-year period includes employment with previous employers.
Hi @Surbhi_Pal - There are conflicting answers available all over the internet on a pertinent matter. Even though the entire maturity amount is exempted from taxes if one withdraws funds from their EPF account after 5 years of service, however, there is no clarity around whether this withdrawal amount (specifically interest) needs to be reported as Income from Other Sources while filing the ITR. Some CAs insist that we should, while some others say it’s not required.
Can someone from Team Quicko provide clarity on this matter?
Hi @Simon_Hunter - All accumulated contributions and interest as on your employment exit date is exempted from taxes (after 5 years of service). However, the interest earned on the accumulated amount after your employment exit date (no contribution period) is taxable under Schedule Income From Other Sources every financial year until withdrawal of entire amount from PF.
i.e. the interest earned after exit date is not exempted from taxes until you start contributing again by taking up another job. The interest earned during the non contribution period is still taxable in the respective financial years.
Hi @MobiApp_dev - If the employment history shared is under same UAN then you have completed 5 years of service and hence PF withdrawal it not taxable. However, the interest earned after the exit date until withdrawal of entire PF amount is taxable under Income from Other Sources in respective FY.
PS: 1) You need to do the same calculation for employer’s share by adding relevant columns and then sum up the interest of both employee’s and employer’s interest to arrive at the total interest earned as on 31/03/2024.
The contribution amount for the month will earn interest only from next month. i.e. it will get added to the accumulated balance for interest calculation only from next month.
Where should I enter the calculated PF interest amount under Income from Other Sources (Item - “Interest, Gross”) when it is taxable?
Interest accrued on contributions to provident fund to the extent taxable as per first proviso to section 10(11)
Statutory Provident Fund (e.g. GPF)
Employer and Employee Contribution
Interest accrued on contributions to provident fund to the extent taxable as per second proviso to section 10(11)
Statutory Provident Fund (e.g. GPF)
Employee Contribution only
Interest accrued on contributions to provident fund to the extent taxable as per first proviso to section 10(12)
Recognized Provident Fund (e.g. EPFO)
Employer and Employee Contribution
Interest accrued on contributions to provident fund to the extent taxable as per second proviso to section 10(12)
