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New EPF taxation rules for FY 2022-2023

New EPF taxation rules for FY 2022-2023

This year the salary increments have been good on the back of a strong economy last year. If you have received your increment letter, we recommend that you check the letter immediately to check if you have increased liability on the EPF interest amount. 

Earlier the interest amount on EPF was not liable to tax. Now, if your annual contribution to the EPF account is more than Rs 2.5 Lakhs in a year, you are liable to pay interest on the excess deposit amount in the EPF account. The limit for the GPF accounts for government employees is Rs 5 Lakhs.

The new rules are applicable from 01 April 2022. The new rules were introduced by the Finance Minister of India, Nirmala Sitharaman. The reasoning for the same was to tax the very high salary earners in India. Many people take excess salary in the EPF accounts to avoid taxes, and this has been stopped by the introduction of these laws. If your EPF contribution in a year exceeds Rs 2.5 Lakhs (Rs 5 Lakhs in case of GPF), you can invest the amount in EPF, but your interest on that excess amount will be taxed. 

Related: 3 things you should know if you are paying taxes for the first time

Explanation of the new rules on EPF interest taxation

Most salaried individuals need not worry about the new rules as this will not likely impact those earning a monthly salary of up to Rs 2 Lakhs. This rule applies only if you invest a large sum of money in the EPF or GPF account.

For example, if you invest Rs 3 Lakhs in a given financial year in the EPF account, your money will be redistributed into two accounts. The first account will be the normal account and will hold Rs 2.5 Lakhs. The second account will hold the excess amount of Rs 50000.

The second account, which holds the excess amount, will be taxed for the interest component you earn. So, any interest you get in the second account will be liable to tax. This rule will impact only if your salary is very high; in most cases, this law does not concern you.

Related: Tax implications on EPF as per new rules

If you are a high salary employee in a private company or the government, you might be taxed on the interest accrued in your EPF or GPF account. If you invest more than Rs 2.5 Lakhs in an EPF account, or more than Rs 5 Lakhs in a GPF account, you will be taxed on the interest earned on the excess amount. So, make sure you understand the new rules, as these rules are applicable from the current financial year. If you have just received your increment letter, you should check the increment letter to make sure that you are under the limit for the EPF or GPF contribution. Here's an expert article by Karan Batra that explains how new TDS will be applied on your excess EPF contribution.