New tax rules relating to interest earned on EPF contribution beyond a certain threshold came into force w.e.f. April 1. As per these rules, interest earned on EPF contribution over and above a limit will attract tax deducted at source (TDS). The threshold for the private sector employees is ₹2.5 lakh, and ₹5 lakh for government employees.
As per the EPFO circular issued on April 6, TDS deduction will commence from April 1. However, salaried employees who happened to contribute more than ₹2.5 lakh a year in past can heave a sigh of relief as no TDS will be levied on EPF balance before fiscal 2021.
In other words, TDS will not apply to the closing balance in the EPF account on March 31, 2021. And even after that any contribution up to ₹2.5 lakh in fiscal 2022 will also be exempted.
However, w.e.f. April 1, 2022, if contribution to the EPF increases beyond ₹2.5 lakh in a year for private sector employees and ₹5 lakh for government employees, then interest earned is taxable.
"The interest earned on the amount in EPF accounts is credited annually. But the accounts are maintained on monthly basis. So, if no transfers/final settlements are made during the financial year, then TDS will be deducted when the interest is paid," says Neha Nagar, CEO, Taxationhelp.in.
EPF contribution above ₹2.5 lakh
For the uninitiated, the central board of direct taxes issued a notification stating that if contribution to the EPF surpasses ₹2.5 lakh for non-government employees and ₹5 lakh for government employees then interest earned from contribution would draw tax.
"TDS on interest earned on excess contribution above ₹2.5 lakh will be applicable in case of final settlement, transfer claims, transfers from exempted organizations to EPFO, and vice-versa, on transfer from one trust to another, past accumulation transfer, and at the time of annual account processing i.e., credit of interest in EPF accounts," adds Ms Nagar.
TDS on interest charged
TDS will be deducted on the interest earned on EPF account. The rate of TDS charged will depend on whether your PF is linked to permanent account number or not. If it’s linked then the rate will be 10 percent and 20 percent for those who have not linked their PF to the PAN.
| Category | Rules |
| EPF linked to PAN | Rate of TDS will be 10 percent |
| Not linked to PAN | Rate of TDS will be 20 percent |
| Death case | In death case, rates of TDS will be same |
| NRIs | In case of NRIs, rate of TDS is 30 percent |
| For 2021-22 | Only the portion above the threshold limit will be taken into consideration |
(Source: epfindia.gov.in)
A lot of people have doubt whether TDS will be levied on past contributions. No TDS will be levied on earlier accumulation until March 31, 2021. It will apply only to contributions made from April 1, 2021 which exceed the threshold of R 2.5 lakh.
The salaried people should make sure that they link their PF account to the PAN. Also, they must get their PF account transferred to the new establishment by submitting form 13(R). This is a simple process and can be done through the member interface at the unified portal.