Provident Fund split up into Taxable and Non-Taxable Accounts
29 minutes read

Provident Fund split up into Taxable and Non-Taxable Accounts

In this blog, we will discuss the Employee Provident fund split up into taxable and non-taxable accounts.

Index:

As per the Central Board of Direct Tax (CBDT), interest earned on employees’ EPF contributions exceeding Rs.2.5 lakh yearly will be taxable. The threshold has been set as Rs.5 Lakh for government employees.

According to the new rules of CBDT, Provident fund split into two separate accounts, taxable and non-taxable accounts. This is to enable the government’s new EPF tax income, generated from the contribution of the Employee that exceeds 2.5 lacks annually.

Let’s look at the key points of EPF accounts –

Key Points –

  • All existing accounts of the Provident Fund split up into two parts, taxable and non-taxable accounts.
  • The new tax is on EPF interest on employee contributions exceeding Rs.2.5 lakh per annum.
  • The rules came into effect from the date of April 1st, 2022.
  • As per the CBDT, the non-taxable accounts will include closing accounts till March 31st, 2021.
  • For the calculation of taxable interest, these two accounts will be maintained within the existing PF account during the financial year and the preceding year, for assessing the taxable and non-taxable contribution made by the Employee.
  • EPF is mandatory for employees earning up to Rs.15,000 PM in any organization with more than 20 employees working.
  • Every employer deducts 12% of the basic salary as EPF contribution per month.

Rules of EPF’s Taxability –

The following are the rules for employer and employee –

Rules for Employer

  • The employer contribution to the P.F. of the Employee is exempt up to 12% of the salary.
  • Employer contributions towards Provident Fund (PF), NPS, and superannuation above Rs.7.5 lakh p.a will be taxable as a perquisite in the hand of the Employee.
  • The employer has to give the details of accrual and taxes withheld in Form 12BA and Form 16 and has to issue it to the Employee.

Rules for Employee

  • Any interest on Employee’s contribution to PF up to Rs.2.5 lakh P. A is exempted.
  • Any interest earned on Employee’s contribution for more than Rs.2.5 lakh p.a will be taxable in the hands of the employee for the year.
  • The excess contribution of Rs.2.5 lakh with interest accrued will be maintained separately.
  • These two separate accounts for taxation will maintain by the Regional Provident Fund Commissioner (RPFC). The RPFC shall deduct TDS on such interest paid on the account maintaining taxable contribution.
  • The threshold of Rs.2.5 lakh is increased to 5 lakhs in case the employer is not contributing towards the EPF.

How taxable and non-taxable accounts will work?

According to CBDT, Employee Provident Fund split up into Taxable and Non-Taxable accounts, which came into effect on April 1st, 2022, with the new format. Let’s; see how it will work.

Contribution of Taxable Account –

  1. Employer contributions made from the financial year 2021-2022 onward which is more than the threshold of Rs.2.5 Lakh

Add: Employee contribution from the FY 2021-22 which is more than Rs.2.5 Lakh.

Add: Interest accrued under taxable contribution account which will be taxable in the hand of the Employee under the Head “Income from Other sources”.

Less: Any withdrawal from the account in the year.

Contribution of Non-Taxable Account –

  1. The employee contribution till the FY 2020-21 i.e. 31st March 2021 will be shown under the Non-taxable account under the closing balance in your PF account.

Add: Employee contribution from the FY 2021-22 which is less than Rs.2.5 Lakh.

Add: Interest accrued under non-taxable contribution account.

Less: Any withdrawal from the account in the year.

As per the issued circular of EPF, we will understand the calculation of Taxable and Non-Taxable with an example –

For the FY 2021-22

Ms. Neharika is contributing 50,000 P.M. to her EPF account and her opening balance as of 31st March 2021 was Rs.3,00,000 and the rate of interest is 8.1% P.A.

Calculation of Taxable and Non-Taxable

Paid in month Monthly contribution Cumulative balance at the end of the month Total Interest @8.1% p.a on end balance Interest on Non – Taxable A/c Interest Taxable A/c
Non-Taxable A/c Taxable A/c
April 2021 50,000 50,000 338 338
May 2021 50,000 1,00,000 675 675
June 2021 50,000 1,50,000 1,013 1,013
July 2021 50,000 2,00,000 1350 1350
Aug 2021 50,000 2,50,000 1688 1688
Sep 2021 50,000 2,50,000 50,000 2025 1688 338
Oct 2021 50,000 2,50,000 100,000 2363 1688 675
Nov 2021 50,000 2,50,000 1,50,000 2700 1688 1013
Dec 2021 50,000 2,50,000 200,000 3038 1688 1350
Jan 2022 50,000 2,50,000 2,50,000 3375 1688 1688
Feb 2022 50,000 2,50,000 300,000 3713 1688 2025
Mar 2022 50,000 2,50,000 3,50,000 4050 1688 2363
Total 6,00,000 2,50,000 3,50,000 26325 16,875 9,450

Available amount under the taxable and non-table accounts and tax implication as on 31st March 2022 –

Sl.No. Particular Non-Taxable A/c (₹) Taxable A/c (₹)
1. Closing balance as on 31st march 2021 300,000 Nil
2. Interest Accrued on Opening Balance 24300 Nil
3. Contribution during the year 250,000 350000
4. Interest accrued during the year 16,875 9,450
5. Total amount of contribution during year FY 2021-22 5,91,175 3,59,450
6. TDS @10% in case PAN is available and linked with Aadhaar. NIL 945
7. TDS @20% where PAN is not available and not linked with Aadhaar. NIL NIL
8. TDS @30% in case of Non-resident (subject to DTAA) NIL NIL
The total available amount for the accounts (End of the year 2021-22) 5,91,175 3,58,505

The total amount available in Ms. Neharika’s EPF account as on 01/04/2022.

  1. IN NON-TAXABLE ACCOUNT – RS. 5,91,175
  2. IN TAXABLE ACCOUNT – RS. 3,58,505
  3. TDS IN HER AIS/26AS – RS. 945

TOTAL EPF BALANCE – RS. 9,49,680/-

For the FY 2022-23

Ms. Neharika is contributing 50,000 P.M. to her EPF account and her opening balance as of 31st March 2022 was Rs.9,49,680 and the rate of interest is 8.1% P.A.

Calculation of Taxable and Non-Taxable

Paid in month Monthly contribution Cumulative balance at the end of the month Total Interest @8.1% p.a on end balance Interest on Non – Taxable A/c Interest Taxable A/c
Non-Taxable A/c Taxable A/c
April 2022 50,000 50,000 338 338
May 2022 50,000 1,00,000 675 675
June 2022 50,000 1,50,000 1,013 1,013
July 2022 50,000 2,00,000 1350 1350
Aug 2022 50,000 2,50,000 1688 1688
Sep 2022 50,000 2,50,000 50,000 2025 1688 338
Oct 2022 50,000 2,50,000 100,000 2363 1688 675
Nov 2022 50,000 2,50,000 1,50,000 2700 1688 1013
Dec 2022 50,000 2,50,000 200,000 3038 1688 1350
Jan 2023 50,000 2,50,000 2,50,000 3375 1688 1688
Feb 2023 50,000 2,50,000 300,000 3713 1688 2025
Mar 2023 50,000 2,50,000 3,50,000 4050 1688 2363
Total 6,00,000 2,50,000 3,50,000 26325 16,875 9,450

Available amount under the taxable and non-table accounts and tax implication as on 31st March 2023 –

Sl.No. Particular Non-Taxable A/c (₹) Taxable A/c (₹)
1. Opening balance as on 31st march 2023 5,91,175 3,58,505
2. Interest Accrued on Opening Balance 47,885 29,039
3. Contribution during the year 2,50,000 3,50,000
4. Interest accrued during the year 16,875 9,450
5. Total amount of contribution during year FY 2021-22 9,05,935 7,37,544
6. TDS @10% in case PAN is available and linked with Aadhaar. NIL 3,849
7. TDS @20% where PAN is not available and not linked with Aadhaar. NIL NIL
8. TDS @30% in case of Non-resident (subject to DTAA) NIL NIL
The total available amount for the accounts (End of the year 2021-22) 9,05,935 7,33,695

The total amount available in Ms. Neharika’s EPF account as on 01/04/2023.

  1. IN NON-TAXABLE ACCOUNT – RS. 9,05,935
  2. IN TAXABLE ACCOUNT – RS. 7,33,695
  3. TDS IN HER AIS/26AS – RS. 3849

TOTAL EPF BALANCE – RS. 16,39,630/-

For the FY 2022-23 WHEN SOME AMOUNT IS WITHDRAWN FROM EPF ACCOUNT

Ms. Neharika is contributing 50,000 P.M. to her EPF account and her opening balance as of 31st March 2022 was Rs.9,49,680 and the rate of interest is 8.1% P.A. Let’s consider that she has withdrawn Rs. 3,00,000/- as an advance on 20th December 2022.

Calculation of Taxable and Non-Taxable

Paid in month Monthly contribution Cumulative balance at the end of the Total Interest @8.1% p.a on end balance Interest on nON-Taxable A/C Interest on Taxable A/C
April 2022 50,000 50,000 338 338
May 2022 50,000 1,00,000 675 675
June 2022 50,000 1,50,000 1,013 1,013
July 2022 50,000 2,00,000 1,350 1,350
Aug 2022 50,000 2,50,000 1,688 1,688
Sep 2022 50,000 2,50,000 50,000 2,025 1,688 338
Oct 2022 50,000 2,50,000 1,00,000 2,363 1,688 675
Nov 2022 50,000 2,50,000 1,50,000 2,700 1,688 1,013
Dec 2022 50,000 2,50,000 2,00,000 3,038 1,688 1,350
Withdrawal 3,00,000 -1,00,000 -2,00,000
Jan 2022 50,000 2,00,000 1,350 1,350
Feb 2022 50,000 2,50,000 1668 1,688
March 2022 50,000 2,50,000 50,000 2,025 1,688 338
Total 6,00,000 2,50,00 50,000 20,256 16542 3714

Available amount under the taxable and non-table accounts and tax implication as on 31st March 2023 –

Sl.No. Particular Non-Taxable A/c (₹) Taxable A/c (₹)
1. Opening balance as on 31st march 2023 5,91,175 3,58,505
2. Interest Accrued on Opening Balance 47,885 29,039
3. Contribution during the year 2,50,000 50,000
4. Interest accrued during the year 16542 3714
5. Total amount of contribution during year FY 2021-22 9,05,602 4,41,258
6. TDS @10% in case PAN is available and linked with Aadhaar. NIL 3,276
7. TDS @20% where PAN is not available and not linked with Aadhaar. NIL NIL
8. TDS @30% in case of Non-resident (subject to DTAA) NIL NIL
The total available amount for the accounts (End of the year 2021-22) 9,05,602 4,37,982

The total amount available in Ms. Neharika’s EPF account as on 01/04/2023.

  1. IN NON-TAXABLE ACCOUNT – RS. 9,05,602
  2. IN TAXABLE ACCOUNT – RS. 4,37,982
  3. TDS IN HER AIS/26AS – RS. 3,276

TOTAL EPF BALANCE – RS. 13,43,584/-

Note: The amount withdrawn during the year was Rs. 3,00,000/-

This is the end of our discussion on the Provident Fund split up into taxable and non-taxable accounts. Let’s know your other questions and opinions on this topic. Mention below the comment box.

To know more details about EPF, read our related posts – Employee Provident Fund

EPF contribution is now taxable for the employee

Employee Provident rules for employer

New rules for PF deduction and contribution