Employee Provident Fund Organisation (EPFO), a central government body, manages and operates the EPF pension fund for government and private sector employees.
Starting FY22, EPFO will maintain separate PF accounts for the calculation of taxable and non-taxable contributions by a person for all subsequent years: one for contributions within the limit and the other for contributions over the limit.
How will EPF contributions be taxed from FY22
In addition to the limits already discussed, in case there are no contributions from the employer of an individual, then the threshold will be Rs 5 lakh of the employee’s contribution. The employer contributes 12% of the employee’s basic salary plus Dearness Allowance (DA) to EPF pension fund and 8.33% goes into EPS which earns no interest.
It is to be noted that the Rs 5 lakh limit is applicable to more than 93% of EPFO subscribers who will continue to enjoy tax-free interest on contributions to the pension fund.
Also, only interest earned on excess contributions will be taxed and not the contribution itself as the employee already pays TDS on the salary from which the contributions are derived.
Also, interest on contributions from any balance outstanding to an employee as of March 31, 20221 on this non-taxable account will remain interest-free.
Interest on higher PF contributions, which was tax-free earlier, will be taxed from April 1, 2022. There will be no income tax on interest earned on contributions until a certain threshold. Starting FY22, EPFO will maintain separate PF accounts for the calculation of taxable and non-taxable contributions by a person for all subsequent years: one for contributions within the limit and the other for contributions over the limit.