Is Employees Provident Fund (EPF) Taxable? If So, When Is It Taxable?

One of the most popular retirement savings plan is the EPF or the Employees Provident Fund. Apart from being popular, today it offers the highest interest rate as well. For the FY 2020-21, the interest rate offered was 8.5%, which is a solid sum under the present interest regime.

When is interest rate on employees provident fund (EPF) taxable?

The taxation on the EPF depends on the tenure of job and the contribution thereof. If you have contributed to the EPF for more than 5-years, then the entire amount is not taxable. For this purpose, let us assume that you have changed your job before 5-years and you have also continued to contribute to the employees provident fund, then most certainly that too would be taken into account and the amount would not be taxable.

How is employees provident fund taxed, if you have not completed 5-years of service?

In case, you have not completed 5-years of service, then there would be two components that would be taxed. In this case, the contribution by the employer and the interest thereof, would be taxed under the category of income from other sources.

An employees contribution becomes taxable under the head of salaries. There is also a TDS that would be made applicable on the employees provident fund, if the EPF amount is withdrawn before a period of 5-years.
However, if the amount is not more than Rs 50,000, then there would be no tax deducted at source that would be applicable.
As is the case when you open a bank FD, if there is no TDS that you would want deducted then you must submit the form 15G and form 15H accordingly.

Why you must also increase your EPF contribution?

One can use the Voluntary Provident Fund (VPF) too for increasing the contribution to the EPF. We strongly recommend doing so, as this would give you an interest rate of 8.5% and if you work continuously for a 5-year period it would also offer tax exemption. Currently, there is no company fixed deposit or bank deposit that offers you an interest rate of 8.5%. It is therefore beneficial for individuals to increase their contribution to the employees provident fund by way of the VPF. It will help investors build a corpus for retirement as well as generate good returns and also get benefits under SEC80C of the Income Tax Act. Not to mention the fact that they are exceedingly safe as well.