How is EPF interest and withdrawal taxed?

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.

  1. If i contribute to provident fund, the amount taxed will be (yearly deposit-2.5L) if positive? Or is 2.5L on the total amount deposited to pf?
  2. And how can we know the amount that i can withdraw from pf tax free at any point of time?

Hey @Chb,

With regard to your queries,

Moreover, your PF withdrawal is tax-free if you take the funds out after 5 years of continuous service.

Hope this helps!

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,

Need more clarity on the taxation upon withdrawal. if the attached employment history would render any taxation upon withdrawal.

Thank you.