Now interest on EPF is taxable for high salaried employees.

New tax rule on interest earned on EPF

In union budget 21 The Honourable the Finance Minister announced a proposal to restrict tax exemption for the interest income from EPF for the high income employees.
Interest earned on EPF contribution above 2.5 lacs is taxable at normal rate for an employee.
If an employee contributes more than ₹. 2.5 lacs towards provident fund in a financial year, then interest earned on excess amount (Contribution- 2.5 lacs) will be taxable at normal rate.

EmployeeABC
PF WAGES8 lacs8 lacs24lacs
EPF₹96k
at12%
₹4lacs
at50%
₹288k
at12%
Tax-free Amount
(Interest)
₹96k₹2.5lacs₹2.5lacs
Taxable Amount
(Interest)
₹0₹1.5lacs₹38k
Tax-free Interest (8.5%)₹8160₹21250
₹21250
Taxable Interest (8.5%)₹0₹12750
₹3230

Employee A of above mentioned table contributes ₹. 96000 towards EPF that is 12% of his annual wages ₹. 8 lacs. Hence the EPF contribution is less than 2.5lacs then interest on 96000 that is 8160 is tax-free.

But employee B contributes 50% of his annual wages(8 lacs) that is 4 lacs. Hence here the EPF contribution is higher than exampted limit (2.5lacs) so interest earned on excess amount 1.5 lacs (4 lacs- 2.5 lacs) is taxable that is 12750. He has to pay income tax on 12750(interest) at normal tax rate.

And now see the employee C. He contributes 12 % that is 288000. Here 38000 is excess amount. He has to pay income tax on 3230(interest) at normal tax rate.

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