The Employees’ Provident Fund (EPF) is a retirement savings scheme for salaried employees in India. It is a contributory scheme, where both the employee and the employer contribute a certain percentage of the employee’s basic salary and dearness allowance to the EPF account.

Under the Income Tax Act, 1961, the employee’s contribution to the EPF account is allowed as a deduction under Section 80C, up to a maximum limit of ₹1.5 lakh per year. The employer’s contribution to the EPF account is exempt from income tax up to 12% of the employee’s basic salary and dearness allowance. Any excess contribution by the employer is taxable as a perquisite in the hands of the employee.

The interest earned on the employee’s and employer’s contributions to the EPF account is taxable as income from other sources. However, the interest earned on the employee’s contribution is tax-free up to ₹2.5 lakh per year. Any interest earned in excess of ₹2.5 lakh is taxable.

Taxability of EPF withdrawal:

The taxability of EPF withdrawal depends on the following factors:

• Whether the employee has completed 5 years of continuous service: If the employee has completed 5 years of continuous service, then the entire EPF withdrawal is tax-free.
• Whether the employee has withdrawn the EPF amount within 5 years of leaving the job: If the employee has withdrawn the EPF amount within 5 years of leaving the job, then the following rules apply:
  • The employee’s contribution and interest earned on it are tax-free.
  • The employer’s contribution and interest earned on it are taxable as salary income.
• Whether the employee has withdrawn the EPF amount after 5 years of leaving the job: If the employee has withdrawn the EPF amount after 5 years of leaving the job, then the entire EPF withdrawal is tax-free.

Exemption for EPF withdrawal in case of death or disability:

If an employee dies or becomes disabled, then the entire EPF withdrawal is tax-free for the nominee or the employee, as the case may be.

EXAMPLES

• Tamil Nadu Employees’ Provident Fund Organization (TNEPF): This is a regional office of the Employees’ Provident Fund Organisation (EPFO) that covers the state of Tamil Nadu.
• Karnataka Employees’ Provident Fund Organization (KEPF): This is a regional office of the EPFO that covers the state of Karnataka.
• Maharashtra Employees’ Provident Fund Organization (MEPF): This is a regional office of the EPFO that covers the state of Maharashtra.
• Andhra Pradesh Employees’ Provident Fund Organization (APEPF): This is a regional office of the EPFO that covers the state of Andhra Pradesh.
• Kerala Employees’ Provident Fund Organization (KEPF): This is a regional office of the EPFO that covers the state of Kerala.
• West Bengal Employees’ Provident Fund Organization (WBEPF): This is a regional office of the EPFO that covers the state of West Bengal.
• Gujarat Employees’ Provident Fund Organization (GEPF): This is a regional office of the EPFO that covers the state of Gujarat.
• Rajasthan Employees’ Provident Fund Organization (REPF): This is a regional office of the EPFO that covers the state of Rajasthan.
• Delhi Employees’ Provident Fund Organization (DEPF): This is a regional office of the EPFO that covers the state of Delhi.
• Uttar Pradesh Employees’ Provident Fund Organization (UPEPF): This is a regional office of the EPFO that covers the state of Uttar Pradesh.
• Bihar Employees’ Provident Fund Organization (BEPF): This is a regional office of the EPFO that covers the state of Bihar.
• Madhya Pradesh Employees’ Provident Fund Organization (MPEPF): This is a regional office of the EPFO that covers the state of Madhya Pradesh.

In addition to these regional offices, the EPFO also has a number of sub-regional offices and district offices located throughout India.

Here are some examples of employees who are eligible for EPF in specific states of India:

• Tamil Nadu : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Karnataka  :Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Maharashtra : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Andhra Pradesh : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Kerala : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• West Bengal : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Gujarat : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Rajasthan : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Delhi: Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Uttar Pradesh : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Bihar : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.
• Madhya Pradesh : Employees of private sector establishments with more than 20 employees, as well as employees of government departments and public sector undertakings.

FAQ QUESTIONS

: Is my Employees Provident Fund (EPF) contribution taxable?

A: No, your EPF contribution is not taxable. However, the interest earned on your EPF contributions is taxable.

Q: What is the maximum limit of EPF contribution that is exempt from tax?

A: The maximum limit of EPF contribution that is exempt from tax is Rs.2.5 lakh per annum. Any interest earned on EPF contributions above this limit will be taxable.

Q: How is the interest on EPF contributions taxed?

A: The interest on EPF contributions is taxed as salary income. This means that it will be taxed at your slab rate of income tax.

Q: Do I need to pay tax on my EPF withdrawal?

A: Yes, you will need to pay tax on your EPF withdrawal if you withdraw the amount before 5 years of continuous service. However, if you withdraw the amount after 5 years of continuous service, you will not need to pay any tax on the amount.

Q: What are the exceptions to the taxability of EPF withdrawal?

A: There are a few exceptions to the taxability of EPF withdrawal, such as:

• If you withdraw the amount due to death or disability.
• If you withdraw the amount to purchase a house.
• If you withdraw the amount to repay a housing loan.
• If you withdraw the amount to pay for your children’s education.

CASE LAWS

• Amyl Ltd. v. CIT (321 ITR 508): The Delhi High Court held that if the assesses had deposited employees’ contribution towards EPF and ESI after due date as prescribed under the relevant Act, but before the due date of filing of return under the Income Tax Act, no disallowance could be made in view of the provisions of Section 43B as amended by Finance Act, 2003.
• Plan man HR (P) Ltd. v. ITO (48 ITR (T) 1182): The Income Tax Appellate Tribunal (ITAT), Delhi, held that no disallowance u/s 36(1)(v) . Section 2(24)(x) can be made if the employees’ contribution to PF and ESI are deposited after the due date prescribed under the relevant Acts, but, paid before the due date of filing of return.
• Sharp Detective Privated Ltd v. ITO (48 ITR (T) 1182): The ITAT, Delhi, held that if the employer fails to deposit the employees’ contribution to the EPF, it would be treated as income of the employer and would be taxed accordingly. However, if the employer deposits the contribution before the due date of filing the return, the employer would be entitled to a deduction.