The Income Tax Department has announced that tax would be levied on interest earned on EPF contributions that exceed the specified limit of Rs 2.5 lakh p.a. (non-government employees) and Rs 5 lakh p.a. (government employees).
The interest earned on EPF contributions up to Rs 2.5 lakh will continue to remain tax exempt, but interest earned on contributions above this figure will be taxable.
For example, let’s assume a non-government employee contributes Rs 3 lakh to his EPF account in 2021-22, and the interest rate is 8%. Then, the 8% interest earned on Rs 2.5 lakh (Rs 20,000) would be tax exempt, and the 8% interest earned on Rs 50,000 (Rs 4000) would be taxable. The tax would be levied on this Rs 4000 according to the Income Tax slab the individual falls in.
Interest earned on the following amounts would be non-taxable:
Closing balance in the account as on 31 March 2021
Any contribution made by the person in their EPF account in that year up to the limit of Rs 2.5 lakh (non-government emplo...