The amount of deposit in Employee Provident Fund is tax free. Opening balance amount in the PF account (previous years deposits and it's Interest earned so far) is totally exempted for Income tax calculation. More over current periods interest over this accumulated balance is also tax free.
Interest is attracted on the current years investment's interest portion , only if the the investment exceeds the ceiling fixed by the income department
The public servant including in an aided school, can get the privilege of investing upto 5 lakhs including arrear credit in a financial year. Its interest is not taxable.
In the case of EPF, where the contribution from the employer is also there, the interest free tax deduction is only Rs. 2.5 lakhs instead of 5 lakhs.
Its explained with an example here
Assume that the PF balance of Mr.X as on 31/03/2021 is Rs 15,50,000 including PF interest. He has deposited Rs 5,50,000 in PF earlier in the current year along with the credit of arrear for the financial year 2020-21. If Mr. X is a govt servant and the interest rate is 8.5%, then the interest that comes under the tax limit for the financial year 2020-21 and the interest that exceeds the tax limit can be calculated as follows.
Here Mr.X should add the gross income to the salary income plus 4250 under the heading ‘income from other sources' while calculating the tax for the financial year 2021-22.
How is the Interest on PF Taxed ?
Help file Prepared by Sri.Babu Vadakkumchery, Principal, KNM VHSS, Vatanappally, Thrissur (alert-success)
