Interest on EPF Contributions above Rs 2.5 lakh is Taxable | Budget 2021

  • sathiyaraj says:

    My question is
    This new rule is applicable from 1st April 2021 onwards, suppose PF+VPF=25000/pm=3L/yr. so excess amount is 50k. Now everywhere i can see 50000*8.5%= Rs.4250(the employee to has to pay tax as per his incometax slab, this i understood. But my question is who will deduct, is it employee itself, will deduct as part of Monthly Tax computation or EPFO itself –> if so, in the same year or next consecutive year). Becoz EPF interest for the previous year is announced in the subsequent year and also interest will be credited in 2022-2023 for PF outstanding till Mar 2022.

    • Sreekanth Reddy says:

      Dear Sathiyaraj,
      I believe that the formal rules on computation are yet to be issued by the Govt. But initial indications are that taxpayers would need to add the interest accrued every year to their income-tax Statements. Central Board of Direct Taxes (CBDT) chairman Mr. PC Mody has indicated that the interest on excess PF contribution will be taxed like that of bank fixed deposit interest. The interest portion is calculable on a year-to-year basis, and that will go on an accrual basis so that it is taxable on your computation of income in that year.

      Suggest you to go through this article….

  • megha says:

    Hi Sreekanth,

    I need suggestion for this issue. i had applied for full pf withdrawal but due to IFSC mismatch got rejected, but consulted my previous organisation to digitally sign bank statement(correct IFSC code). its been already 1 month, they are not signing due to some reason.

    i’m unable to contact pf office contact number, their contact not in service and unable to visit pf office due to lock-down. please suggest me how to digitally sign my bank document and PAN through other solutions instead of organisation and apply for pf full withdrawal.

    with regards,

  • Sreekanth Reddy says:

    Dear Kasi,
    I believe that PPF is not included in this amendment.

  • Dixit says:

    Thank for update.
    My question is say if employee contribuation in FY 21-22 is 6 lakh this year then interest on 3.5 Lac will be taxable. Now
    “Note that the additional interest on this amount (Rs 2 lakh) in subsequent assessment years is not taxable.”

    Now interest earn on this during FY 22-23 is taxable or tax free. My view is its taxable. I think accumulated fund will be seen.

    Dixit Ranka

  • Arun Kumar Balaraman says:

    Dear Sreekanth Reddy,

    Thank you for your response to my query dated 2-Feb-2021.

    From 1-Apr-2021 onwards, is there any restrictions while contributing to NPS (self and employer ), PPF?


  • Kasi says:

    Does PPF and DSOP (Defence services officers Provident fund) comes under this. Request to pls clarify

  • Arun Kumar B says:

    Could you help for the below scenario.

    A person has total outstanding cumulative PF amount as Rs 10 Lakhs as on 01.04.2021.

    He deposited as employee share Rs. 7 lakhs for year 2021-22.

    By end of FY 2021-22 he will get interest for the 17 lakhs at 8.50℅ as Rs. 144500.

    How much amount he should declare as taxable interest?

    • Sreekanth Reddy says:

      Dear Arun,
      The taxable EPF contribution would be Rs 4.5 lakh (Rs 7 L -Rs 2.5 L).
      The interest amount on this Rs 4.5 lakh is a taxable income and taxed at applicable slab rate.

      • Ramesh says:

        Dear Sir,
        A person with substantial PF balance already say 50 Lakhs who used to regularly invest around 1L per month, is it worth to switch to non-guaranteed MF/NPS investments for non-linear appreciation? Or is it advisable to continue in VPF and pay the income tax for the interest of 9.5L (12L – 2.5L) and get guaranteed returns?

  • Rajesh says:

    Dear Sreekanth

    Is the below example correct?

    Annual salary : 50 Lakhs
    Basic (50%) : 25 Lakhs
    PF (12% of basic) = 3 Lakhs

    Interest on extra 50,000 = 4,250 (@8.5%)
    So taxable amount is 4,250
    Tax = 1275 (if 30% slab)

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