EPF Interest on employee contributions above 2.5 lakh now taxable!

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: February 1, 2021 at 2:06 pm

Last Updated on February 9, 2021

From 1st April 2021 onwards, the interest on any contribution above Rs. 2.5 lakh by an employee to a recognised provident fund is taxable as per the provisions of the Finance bill 2021 announced today.

Update: Find out taxable EPF Interest with this calculator

That is, if the total employee PF contribution (mandatory + voluntary) contribution is more than 2.5 lah, the interest earned on the excess amount will be taxable as per slab. The budget memo says this was done because

Instances have come to the notice where some employees are contributing huge
amounts to these funds and entire interest accrued/received on such contributions is
exempt from tax under clause (11) and clause (12) of section 10 of the Act

How will this work?  Suppose total employee contribution is Rs. four lakh. You will need to determine the interest amount corresponding to the excess, that is Rs. 1.5 lakh and declare it as income and pay tax as per slab on it.

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Please see this worked out example: How employee contributions over 2.5 lakhs get taxed like an FD

 

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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