TDS provisions on interest earned on PF contribution.

Before FY 2021-22, the interest credited to the EPF account on any amount of contribution was tax-free. Now a cap of Rs 2.5 lakh has been introduced, interest on contributions beyond this shall be taxable. 

After Budget 2021, interest on an employee’s contribution to an EPF account above Rs 2.5 lakh during the financial year is taxable in the hands of the employee. This interest is also subject to TDS. 

This rule will only apply to the contributions made by the employee, while contributions made by the employer will not be taxed. The calculation of interest on the threshold limit of Rs 2.5 lakh shall also include VPF contributions.

As per notification No. 95/2021 dated 31st August 2021, for calculating taxable interest, the PF department shall maintain separate accounts, one with taxable contribution and another with non-taxable contribution, for all the subscribers starting from the financial year 2021-22 and onwards. 

The taxpayer shall be liable to pay tax on the interest accrued in the taxable contribution account. The EPFO shall deduct TDS on such interest. 

TDS will be deducted at 10% on taxable interest income accrued above the threshold limit during the year as per Section 194A of the IT Act. 

For more details refer  >>>  new-tax-rule-tds-deduction-epf-interest