TDS on interest in PF Contributions

TDS on interest in PF Contributions is tax-free up to a certain limit. However, if the interest earned exceeds this limit, it is subject to tax deduction at source (TDS). The EPFO has issued guidelines regarding the TDS on interest earned on EPF contributions.

EPFO ISSUES GUIDELINES: TDS ON INTEREST ON PF CONTRIBUTIONS

The Employees’ Provident Fund Organization (EPFO) is a government organization in India that administers a social security scheme for Indian workers.

It is responsible for managing the Employees’ Provident Fund (EPF), which is a retirement savings scheme for employees in the organized sector.

Employee Provident Fund Organisation (EPFO) issued a circular dated 06th Apr 2022 which clarifies about the calculation and deduction of tax on taxable interest which is relating to contribution in provident fund pursuant to CBDT Notification No. 95 of 2021-Income Tax. Ads by

This circular is applicable to all EPF subscribers with effect from 01.04.2022 for FY 2021-­22.

As per the circular, the effective date for TDS in case of final claim settlement shall be :

  • 01.04.2022 or final settlement/ transfer – whichever is later,

And in all other case,

  • TDS shall be on the date of credit of interest.

The CBDT notification requiring tax deduction at source would be applicable in case of :

  • PF settlement
  • Transfer claims
  • Transfer from exempted establishment to EPFO or vice-versa
  • Transfer between trusts, past accumulation transfer and

Also applicable in death cases in case of the live member;gives you the explanantion methodology of computing TDS, states that taxable part of contribution will be subject to separate accounting of interest and maintenance as closing balance of taxable part will earn interest and subject to TDS.

Accordingly, the interest on contribution and claim for refund shall be divided into two components – Taxable and Non-taxable for the purposes of deduction of tax.

TDS rate shall be :

  • 10% if PF account is linked with valid PAN,
  • 20% if PF account is not linked with valid PAN(i.e TDS rate would be double)
  • 30% under Section 195 subject to provisions of DTAA; in case of non-resident .

Further, it will be applicable to international workers as well.

Calculation of taxable interest relating to contribution in a provident fund or recognised provided fund, exceeding specified limit has been given under Rule 9D in the income tax rules,1962.

The threshold limit shall mean:

  • Five lakh rupees, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and
  • Two lakh and fifty thousand rupees in other cases.”

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