Outlook Money
The tax rules governing the Employees’ Provident Fund (EPF) are complex. So, one needs to understand these better to keep savings and retirement planning under control.
Under section 80C, the employee's contribution to EPF is liable for tax exemption, up to the limit of Rs 1.5 lakh in a fiscal year, under the old tax regime.
The contributions made by the employer to the EPF are tax-free to the employee provided it does not exceed the limit.
If EPF is withdrawn before the expiry of five years of continuous service, the amount is treated as income liable to tax in accordance with one’s income tax slab.
When the total contribution by an employee, including the employer’s contribution, exceeds Rs 2.5 lakh in a financial year or Rs 5 lakh in the case of only the employee’s contributions, then the interest earned on excess contributions is taxable.
In specific cases, such as medical emergencies or education, if the withdrawal of EPF takes place before five years of service, it attracts tax, but the same may be exempt depending on specific provisions.
The balance withdrawn, which will be both principal and interest, after completion of five years of continuous service is exempt from tax.
Compiled by Syed Muskan