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EPF: When will your tax be taxed, know the complete math

Apart from higher returns and protection than investment options like FD and PPF, the biggest advantage that comes with EPF (Employees Provident Fund) is the exempt-exempt-exempt tax status. That is, all the money that comes in your deposit, interest and maturity is exempted from tax. However, do you know that there are certain conditions when EPF is taxed. For example, if the contribution made by the employer to the EPF account in a financial year exceeds a certain limit, then it will be taxed. There are other cases when you have to pay tax on EPF. Let us know about some more such cases.




what is the rule
As per the existing law, the employee’s own contribution to the EPF account is not taxed. However, as per the rules effective from April 1, 2020, if the contribution of the employer to the EPF account exceeds Rs 7.5 lakh in a financial year, it will be taxed. Experts say that the Employer’s Extra Contribution to EPF, NPS and / or Retirement Fund (Superannuation) will be taxed as a perquisite for the employee. The employer needs to calculate the amount which will be taxed as perquisite and it will be reflected in your Form 16. Suppose an employer contributes Rs 1 lakh to a retirement fund, Rs 5 lakh to an NPS and Rs 2 lakh to an EPF account in a financial year. This is a total contribution of Rs 8 lakh, i.e. it is Rs 50,000 more than the tax free limit of Rs 7.5 lakh. Thus the employee will have to pay tax on the additional contribution.

If no contribution is made to NPS and Retirement Fund
Suppose an employee does not have an NPS account and retirement fund. However, the contribution of the Employer to the EPF account in a financial year is Rs 8.5 lakh. In this case also, the employee will have to pay tax on money exceeding Rs 7.5 lakh.

Tax on EPF account interest
By the way, the interest earned on EPF account is tax free. But there are two situations where the interest earned is taxable. With effect from April 1, 2021, if an employee’s own contribution to the EPF account along with additional contribution through Voluntary Provident Fund (VPF) exceeds Rs 2.5 lakh in a financial year, the interest earned on the additional contribution will be taxable. Second, as mentioned above, if the employer’s contribution to EPF, retirement fund and NPS exceeds Rs 7.5 lakh in a financial year, the interest earned on the additional contribution will also be taxable.

Tax on money withdrawn from EPF
If the money is withdrawn from the EPF account at the time of maturity or partial withdrawal is done as per the permission given under the EPF scheme (eg for the purpose of marriage, building a house etc.), then the withdrawn money will be exempt from tax. is. Withdrawal of full money from EPF account is also allowed. This can be done when an employee has left his job and has not secured a new job after two months. In such a situation, the withdrawal from the EPF account will be taxed, which will depend on how long the EPF account has been active.

Know full rules
If withdrawals are made from EPF account after working for 5 consecutive years, then such withdrawals are exempt from tax. On the other hand, if the continuous service is less than five years, the amount withdrawn will be taxable. Further, if the withdrawal amount is more than Rs 50,000, then TDS will be applicable at the rate of 10%. Keep in mind that TDS on EPF withdrawals is applicable before the completion of 5 years of service and the withdrawal amount of more than Rs 50,000.

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