In the past few months, many employees must have received their annual increment letters. Along with the increase in the total salary of the individual, there will be an increase in the amount to which the contribution is to be made. Employees Provident Fund (EPF) account. It is important to check how much will be contributed to your EPF account. This is because if epf account If the contribution exceeds a specified limit, the interest earned from the additional contribution will be taxable.

With effect from April 1, 2021 (i.e. from FY 2021-22), if an employee’s own contribution to EPF and Voluntary Provident Fund (VPF) exceeds Rs 2.5 lakh in a financial year, the interest earned on the additional contribution will be taxable. would be eligible. Interest earned on additional contributions will be taxed as per the income tax rates applicable to your income. The latest income tax return forms notified for the FY 2021-22 (age 2022-23) ask individual taxpayers to report and pay the tax on additional EPF and interest earned on VPF contributions.

Thus, one must check not only for the current FY 2022-23 but also for the previous year i.e. FY 2021-22 whether there is taxable interest which should be reported. ITR,

Here you can check whether the interest earned on his EPF account is taxable or not.

how to check that EPF interest earned is taxable

The easiest way to check whether the EPF interest earned in a financial year is taxable or not is by checking your salary slip. Every month your employer deducts your EPF contribution from the salary paid. In addition, if you have chosen VPF Contribution Also, such deduction will also be reflected in your salary slip. The EPF and VPF contributions appearing in your salary slip should be multiplied by 12.

Let’s say your basic salary is Rs 30,000 per month. Your employer will calculate your EPF contribution at the rate of 12% of your basic salary. Your monthly contribution to EPF account is Rs 3600 (12% of Rs 30,000). Also, you have opted for VPF contribution of Rs 3000 per month. Hence, the monthly contribution to your EPF account is Rs 6,600.

You need to multiply this monthly EPF account contribution by 12 (Rs 6,600X12). The total annual contribution to the EPF account will be Rs 79,200. Here, the annual EPF and VPF contribution made by you is less than the mandatory limit of Rs 2.5 lakh. Hence, the interest earned on your annual contribution will remain tax free.

In case of Government servants

If you are a government employee or an employee whose employer does not contribute to the EPF account, the tax-free EPF and VPF contribution limit is Rs 5 lakh. This would mean that the interest earned on EPF and VPF will remain tax-free if the employee’s own contribution does not exceed Rs 5 lakh in a financial year.

If the employee’s own EPF and VPF contribution in any financial year exceeds Rs 5 lakh, the interest earned on the additional contribution will be taxable.

If EPF interest becomes taxable

If the employee’s own EPF and VPF contributions exceed the specified limit, Rs 2.5 lakh or Rs 5 lakh, as the case may be, the interest earned on the additional contribution becomes taxable. Another EPF account will be opened to credit the additional EPF and interest earned on VPF contribution. This was clarified by the Central Board of Direct Taxes (CBDT) through a notification dated August 31, 2021.

For the purpose of computing taxable interest from EPF and VPF contributions, a separate account will be maintained with the Provident Fund during and from the financial year 2021-22. In addition, any contribution made till March 31, 2021 will remain tax-free.

If the interest earned on EPF and VPF contributions becomes taxable either in the previous year (FY 2021-22) or the current year (FY 2022-23), then that interest will be reflected in the newly opened EPF account.