Yes, EPF interest that you earn is taxable and your ITR filing must reflect it. However, before you get shocked and confused, understand if the same applies to you. Know that EPF interest will be taxable for any individuals with high Employees’ Provident Fund (EPF) contributions. This in effect indicates that the majority of Employees’ Provident Fund Organisation (EPFO) subscribers will not have to pay any tax. So, who will be paying this tax on EPF interest earned?
The government has significantly changed the EPF tax rules. EPF interest is taxable for those who make contributions in excess of Rs 250000 during the fiscal and it falls under the tax deductible at source (TDS) system. The EPF interest contributions before 2021, were entirely tax free, but it was added in the rule books thereafter. The idea was to make those who earn large incomes pay tax on the very high EPF interest that they earned.
So, if a subscriber contributes more than Rs 2.5 lakh, a different treatment is meted out to him by the Income-Tax department. While the EPF contributions of the person of Rs 2.5 lakh remain untaxed, any sum over and above that amount contributed, will get tax slapped on the interest earned. Let us say that an EPF contribution of Rs 600000 is made in a year. Then EPF interest earned on Rs 2.5 lakh, out of the entire amount, is not taxable. However, the interest earned on the remaining Rs 350000 is.
This EPF interest is added to your overall (gross) income and taxed as per the income tax slab that the employee falls under.
This EPF interest tax example may help subscribers:
EPF Contribution in fiscal: Rs 6 lakh
EPF Interest Rate (current): 8.25%
EPF Interest Earned in FY: 600000*8.25%= Rs 49500 – The taxman will take a part of this from you.
Interest on Rs 2.5 lakh: Nil – 250000*8.25%= Rs 20625 (income tax free)
Interest on the excess Rs 350000: 350000*8.25% = Rs 28,875 (This amount will be taxable and will be added to your income for the year).
So, while a majority of EPF subscribers don’t really have to worry about paying this income tax, many others will have to do so and it will reflect and impact their ITR filing and they should be on the lookout for all the things that are ballooning up their gross income for taxable purposes.
EPF interest tax: Yes, EPF subscribers will have to pay tax on EPF interest and this will impact their income for ITR filing purposes. Check how and why. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
