TDS on interest in PF Contributions

Interest on employee provident fund contributions exceeding ₹2.5 lakh in a financial year is taxable under the second provisos to Sections 10(11) and 10(12) of the Income-tax Act, with the threshold raised to ₹5 lakh where there is no employer contribution as in the GPF. Rule 9D requires PF trusts to maintain separate taxable and non-taxable accounts, and EPFO deducts TDS under Section 194A at 10% on the taxable interest, or 20% if PAN is missing. Members report this in their ITR as income from other sources.

Mayank Wadhera

Published: 15 Apr 2022

Updated: 16 May 2026

4 min read

Interest on excess employee contributions to the Employees' Provident Fund (EPF) is taxable from FY 2021-22 onwards, and EPFO's operational guidelines continue to bind member experiences in FY 2026-27. With Union Budget 2026 leaving the existing limits intact, taxable interest on contributions beyond the prescribed thresholds is now a permanent feature of PF planning.

The legal framework

Section 10(11) and Section 10(12) of the Income-tax Act exempt PF interest, but the second provisos inserted by the Finance Act, 2021 carve out interest on contributions above ₹2.5 lakh in a financial year (raised to ₹5 lakh where there is no employer contribution, such as in the General Provident Fund). Rule 9D of the Income-tax Rules requires PF trusts to maintain two separate accounts within a member's PF balance — taxable and non-taxable.

How taxable interest is computed

Identify total employee contribution in the financial year
Compare with the threshold: ₹2.5 lakh (with employer contribution) or ₹5 lakh (no employer contribution, e.g., GPF)
Excess over the threshold forms the taxable contribution
Interest on the closing balance of the taxable contribution account is treated as income from other sources
EPFO/PF trust deducts TDS under Section 194A on this interest portion at the applicable rate

EPFO's operational guidelines

EPFO has directed field offices and PF trusts to compute taxable interest member-wise, deduct TDS, and report it in Form 26Q. The annual passbook now reflects taxable and non-taxable balances separately. Members can view interest credited and TDS deducted on the Unified Member Portal and download Form 16A from the deductor for filing their income-tax return.

PAN, Aadhaar and rate of TDS

Where the member has linked PAN and validated KYC, TDS is deducted at 10% under Section 194A; if PAN is not available or invalid, TDS is deducted at 20% under Section 206AA. NRI members face TDS at the higher of the rate in force or the rate under the relevant tax treaty, supported by Form 10F and a Tax Residency Certificate.

Reporting in the income-tax return

Identify taxable PF interest from the EPFO passbook and Form 16A
Add it under Income from Other Sources in ITR-2 or ITR-3
Claim credit for TDS deducted via Section 199
Reconcile with AIS and TIS entries before final submission
Retain Form 16A and passbook copies for at least six years

Planning tips for FY 2026-27

If your annual employee contribution is touching the threshold, consider whether incremental contributions are still tax-efficient or whether alternative vehicles (PPF up to ₹1.5 lakh, NPS Tier-I under Section 80CCD(1B), or debt mutual funds) better match your goals. Salary structuring can also help senior employees stay within the threshold while preserving overall retirement saving.

Tracking the taxable balance

EPFO's Unified Member Portal now segregates the taxable and non-taxable PF accounts. Members can view month-wise interest credit on both accounts and download statements. Crosscheck the figures against your salary structure to confirm that the employer's monthly contribution is correctly excluded from the taxable contribution computation and that voluntary provident fund (VPF) excess contributions are correctly tagged as taxable where they cross the threshold.

Planning around the threshold

Cap voluntary PF contributions to stay within ₹2.5 lakh annual aggregate
Consider PPF (₹1.5 lakh annual cap) for additional tax-free interest under EEE
Use NPS Tier-I with ₹50,000 deduction under Section 80CCD(1B) — only relevant if old regime is chosen
Re-evaluate annually after each salary revision when annual contribution might cross the threshold
For senior employees nearing retirement, model partial withdrawal options carefully

NRI member-specific issues

NRI members face additional complexity. EPFO deducts TDS at the higher of the rate in force under Section 195 and the rate under the applicable DTAA. To claim DTAA benefit, the member furnishes Tax Residency Certificate, Form 10F, and a self-declaration of no permanent establishment in India. NRIs should also be mindful that PF interest, once taxable, may need to be reported in the home country and credit claimed under the DTAA's relief article.

Conclusion

PF interest is no longer fully tax-free for high contributors. Track your annual contribution, monitor the taxable balance in your passbook, reconcile TDS credits in AIS, and report the taxable interest correctly in your ITR. A few minutes of planning each April can save unpleasant surprises at filing time.

Frequently Asked Questions

Is PF interest taxable in India?

Interest on contributions up to ₹2.5 lakh per financial year (₹5 lakh where there is no employer contribution) remains tax-free. Interest on contributions above this threshold is taxable as income from other sources, and the PF trust deducts TDS under Section 194A.

How does EPFO deduct TDS on PF interest?

EPFO computes interest on the taxable contribution account separately under Rule 9D and deducts TDS at 10% under Section 194A where PAN is valid, or 20% under Section 206AA if PAN is missing. The TDS is reported in Form 26Q and reflected in the member's Form 16A and AIS.

How do I report taxable PF interest in my ITR?

Disclose the taxable interest under Income from Other Sources in ITR-2 or ITR-3, claim credit for TDS deducted, and reconcile the figure with the EPFO passbook and AIS. Maintain Form 16A and passbook copies for at least six years for assessment purposes.

Does the ₹2.5 lakh PF threshold apply to GPF subscribers?

No. For General Provident Fund subscribers and others where there is no employer contribution, the threshold is ₹5 lakh per financial year. Interest on the contribution exceeding ₹5 lakh becomes taxable, while interest on contributions up to ₹5 lakh continues to enjoy full exemption.