EPF interest tax rules: Although the interest income on the employee provident fund is completely tax free, the interest becomes taxable when the account is inoperative.
Provident Fund is also known as Retirement Fund. If you are a job seeker, then every month some part of your salary is deposited in the provident fund. This is called Employee Provident Fund. This is 12 percent of the basic salary. EPF is a great investment option as it is tax free at three levels. The amount of deduction under section 80C is given on the amount you invest in EPF and VPF. Interest income is completely tax free and it is completely tax free even after maturity.
However, in the Budget 2021, interest income has been brought under the tax net. Now up to 2.5 lakh, interest income on EPF or VPF is tax free. If you invest beyond that, the interest income on the additional amount is taxable. Talking about tax, if you withdraw money from this fund in pre-maturity then it comes under the tax net. This fund can be used before retirement, but the tax rules are different with different conditions.
Interest income is completely tax free
As stated earlier, the interest income for provident fund is completely tax free but it is necessary to be operative. If the PF account becomes inoperative, then the interest income will continue, but it comes under the tax net. If monthly contribution does not come to the PF account for 36 consecutive months, then it becomes inoperative.
What is the five year rule
If the PF account is five years old, then neither TDS will be deducted nor this income is taxable. If you withdraw money from this fund before five years of continuous employment, then TDS will not be deducted on withdrawal of less than 50 thousand, but this amount will be added to the basic income and you will have to pay tax. If the amount withdrawn is more than 50 thousand then 10% TDS will be deducted if the PAN is linked.
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