Provident Fund Not Linked With PAN? Pay 100% More TDS! Taxation Rules Revealed For PF Contributions Above Rs 2.5 Lakh

The Employees’ Provident Fund Organisation (EPFO) has released new guidelines on tax deduction for employees in the private sector.

In particular, private sector employees whose contribution to the retirement savings account is more than ? 2.50 lakh, annually.

Thresholds For Interest Payments

As per the new rules investors will now have to pay tax on interest on provident fund (PF) contributions starting April 1. 

However not all are affected by this.

This applies to investors saving more than Rs 2.5 lakh annually who will have to pay tax on the interest on PF savings. 

If the contributions are under Rs 2.5 lakh in a year the interest credited to the PF account will be tax-free.

New Rules

The new rules will mainly impact high-income earners who have a higher PF deduction.

Prior to Budget 2021, interest on EPF was totally tax-free, so investors could save as much as they want in PF schemes without having to be concerned about taxes involved.

If employers do not contribute, subscribers will have to pay taxes on interest on savings of more than Rs 5 lakh per year. 

The tax on interest will apply every year the savings cross the Rs 2.5 lakh mark. 

Two Separate Accounts

To make it easier for calculating the taxes on EPF saving, two separate accounts will be created within existing PF accounts.

One account will have savings up to Rs 2.5 lakh while the other will have investments above Rs 2.5 lakh.

The EPFO said that the taxation threshold for EPF contribution for government employees would be ? 5 lakh annually.

This taxation regime has come into effect from April 1 this year.

For Indian Residents

For Indian residents, if a PF account is linked with a valid PAN card, then the rate of TDS will be 10%.

This gets doubled if the account is not linked with PAN.

EPFO will maintain a non-taxable account and a taxable account for all such members who contribute over ? 2.5 lakh.

Applicable Rates For NRIs

For a non-resident, the TDS will be deducted at 30% as specified under the Double Taxation Avoidance Agreement (DTAA) and if the PF account is linked with a valid PAN.

4% cess of TDS is applicable to non-residents.

Further, the surcharge on NRIs’ interest above ?50 lakh to ?1 crore, is 10%.

It is 15% on interest above ?1 crore to ?2 crore.

It is 25% if the interest is above ?2 crore to ?5 crore.

It is 37% on interest above ?5 crore to ?10 crore and exceeding ?10 crore.

There will be no surcharge on interest above ?50 lakh.