PF Returns Taxed: You might want to closely monitor the most recent tax regulations if you are a paid employee whose provident fund (PF) is withheld each month. One of the most reputable savings plans in India, the Employees’ Provident Fund (EPF), still offers alluring rewards, although not all of them are tax-free these days.

The EPF interest rate has been set at 8.25% annually for the fiscal year 2024 – 2025. This interest is credited every year and is computed based on donations made between April 1, 2024, and March 31, 2025. But since the government changed the tax laws in 2021, interest on employee contributions that exceed ₹2.5 lakh annually is now subject to taxes.

This implies that interest produced on the extra money will be taxed in accordance with your income tax slab if your yearly PF contribution exceeds ₹2.5 lakh. For instance, interest on contributions over ₹2.5 lakh will be taxed at 30% if you are in the 30% tax bracket. The purpose of this modification was to include high-income salaried people, who frequently make sizable voluntary contributions, in the tax system.

Tax Deduction Details on EPF: 

Under the previous tax system, Section 80C allowed for an annual deduction of up to ₹1.5 lakh for EPF payments. Nevertheless, these deductions have been eliminated under the current income tax system. Employees can still make contributions to their PF, but they won’t be eligible for a tax deduction. The employer’s contribution is a further crucial rule to be aware of.

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The employee will be considered to have taxable income if the employer’s total contribution to the superannuation fund, NPS, and EPF in a given fiscal year exceeds ₹7.5 lakh. Both the old and new tax systems apply to this. The purpose of these regulations, according to the government, is to guarantee that the tax advantages linked to PF savings are fair and do not favor high earners who make significant voluntary contributions.

The tax-free comfort zone now has boundaries, even if the EPF is still a safe, long-term retirement savings choice with guaranteed returns. To prevent unpleasant surprises when it comes time to file income tax returns, salaried professionals should monitor their annual contributions and interest.

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