It is more than a quarter that we have entered the new financial year 2022-23. Hence, most of the salaried persons must have received their increment letters from their employers. As expected, the employees would have seen the annual increase after receiving the increment letter. However, they are advised to look at the monthly provident fund (PF) deduction as well. As per Income Tax rules, if the Employees’ Provident Fund Organization or EPFO member’s annual EPF contribution exceeds a certain limit, then the EPF interest earned on the excess amount will be taxable. In fact, the contribution amount in excess of the limit will also be taxable.
According to income tax rulesWith effect from 1st April, 2021, if the personal annual EPF Contribution and Voluntary Provident Fund (VPF) contribution together is more 2.50 lakh in a financial year, then in that case the EPF interest earned on the contribution amount exceeds Exceeding the limit and amount of 2.50 lakhs 2.50 lakh annual limit will be taxable. It means, if a salaried person has invested 3 lakh in one’s EPF account in a financial year, then EPF interest earned on additional 50,000 contribution will be taxable as per the income tax slab applicable to the earner after adding EPF interest and his net taxable annual income. This 50,000 is also taxable under the new income tax rule.
In case of a Government servant and EPFO members whose recruiters do not contribute their EPF contribution, the maximum limit is 5 lakhs.
How to check whether one’s EPF interest is taxable or not?
After receiving the increment letter, an employee has to go through the monthly salary details and check about the monthly EPF contribution. After finding out the monthly EPF contribution, one has to multiply by 12. if the result is greater than 2.5 lakhs, then in that case one’s EPF interest accrues above 2.50 lakh annual contribution will be taxable and the amount above 2.50 lakhs contributed to the EPF account will also be taxable.
As per CBDT (Central Board of Direct Taxes) notification dated 31st August 2021, if the annual PF contribution of an employee is more 2.50 lakh, then his second PF account will be opened where the amount will be higher. 2.50 lakh will be deposited. This will make the job of the Income Tax Department easier as both the contribution amount and the EPF interest earned in another PF account will be taxable.
money work ahead
As per Section 80C of the Income Tax Act, 1961, EPF contributions and interest earned on one’s PF are exempt from income tax. But, one cannot claim more than 1.50 lakh annual contribution under this section. So, if the EPF contribution of an employee is going forward 2.50 lakh or 5.0 lakhs per annum, then in that case one needs to look at other tax saving options like section 80CCD, etc.
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