Employee Provident Fund (EPF) is one of the most popular investment options in India. It is a retirement savings scheme that is backed by the government and administered by the Employees’ Provident Fund Organisation (EPFO). It provides tax-free returns to the employees.
However, the interest earned on EPF is taxable and thus, the EPF account holders need to pay taxes on the interest earned. This article will discuss the taxation of EPF interest amount in India.
What is EPF?
EPF is a retirement benefits scheme provided by the Employees’ Provident Fund Organisation that is managed by the Government of India. It is a social security scheme that provides a lump sum amount to the employees on retirement.
EPF is a tax-free investment option wherein the employee contributes a certain portion of his/her salary to the EPF account and is matched by the employer. The contribution made by the employee is eligible for tax deduction under Section 80C of the Income Tax Act, 1961.
Taxation of EPF interest amount
The interest earned on the EPF account is taxable under the Income Tax Act, 1961. The interest earned on the EPF account is treated as ‘Income from other sources’ and the taxability of the interest earned is determined by the total taxable income of the person. The tax rate applicable for the interest earned on EPF account differs for different tax slabs and is as follows:
For individuals with total taxable income of up to Rs. 2.5 lakh, the interest earned on EPF is exempt from tax.
For individuals with total taxable income of more than Rs. 2.5 lakh, the interest earned on EPF is taxable at the applicable slab rate.
Tax Deduction at Source (TDS) on EPF interest amount
The EPFO deducts TDS at the rate of 10% on the interest earned on the EPF account, if the interest amount is more than Rs. 50,000 in a financial year. The TDS is deducted from the interest amount every month and is deposited to the government.
The TDS is applicable to all the EPF account holders irrespective of their income tax slab. The TDS deducted from the interest amount can be claimed as a tax deduction against the applicable income tax slab.
How to claim tax deduction on EPF interest amount?
The EPF interest amount is taxable income and the TDS is deducted from the interest amount. To claim the tax deduction for the TDS deducted, the taxpayer needs to provide the details of the TDS deducted to the income tax department.
The taxpayer needs to submit Form 15G/Form 15H to the income tax department in order to claim the tax deduction against the applicable income tax slab. It is important for taxpayers to fill out the form correctly and provide all the relevant information to ensure that the tax deduction can be claimed easily. By doing so, taxpayers can avail the tax benefit on the EPF interest amount and save money in the process.
Conclusion
EPF is one of the most popular investment options in India and the returns earned on EPF accounts are tax-free. However, the interest earned on EPF accounts is taxable and the EPF account holders need to pay taxes on the interest earned.
The rate of tax applicable on the interest earned on the EPF account depends on the total taxable income of the taxpayer and the TDS is deducted from the interest amount if it is more than Rs. 50,000. The amount of TDS deducted can be claimed as a tax deduction against the applicable income tax slab.
