TDS to apply on interest earned/accrued on PF contributions (EE share) exceeding Rs. 2.50L per annum-wef FY 2021-22
The interest earned on the Employee PF contribution on the amount above Rs. 2.5 lakh w.e.f. 01/4/2021 shall be chargeable to tax, i.e. if Contribution is more than 2.5 lakhs per annum, the interest amount earned on the Employee PF contribution above Rs.2.5 lakh shall be taxable.
The past accumulated balance is safe and no tax on it. Moreover, the interest earned on such accumulation will not be chargeable to tax. The new proviso is on the interest earned by Employees’ PF contribution above 2.5 Lakh a year will now be taxed.
The Employer’s contribution is not part of this clause. Thus, only the Employee share of contribution of above Rs. 2.5 lakhs per annum is liable for TDS. The EPFO has issued a detailed circular dt. 05/04/22, discussing about various provisions including case scenarios and FAQs and a flow chart as to how the tax treatment would be given to the interest portion earned on the annual contributions exceeding 2.5L. Copy attached.