Moment guide · FY 2026-27

I am checking my monthly EPF contribution and its tax

How much EPF is deducted from salary and is it taxable?

You contribute 12% of basic + DA to EPF and your employer matches it; the employee share is deductible under 80C in the old regime and the employer share is exempt. The accumulated balance is tax-free on withdrawal after 5 years of continuous service, while premature withdrawal makes the interest taxable and attracts 10% TDS. From AY 2022-23, interest on employee contributions above ₹2.5 lakh a year is taxable under section 9(11AA).

The #1 trap

Ignoring section 9(11AA): if you contribute more than ₹2.5 lakh a year to EPF (possible with high basic or VPF), the interest on the excess is taxable from AY 2022-23, even though EPF is 'tax-free'. The other classic miss is withdrawing before 5 years of continuous service, which makes the interest taxable and triggers TDS.

Sneha, senior manager with a high basic salary

Sneha's basic salary plus DA is ₹30,00,000 a year, so her monthly EPF contribution is 12% of ₹2,50,000, which is ₹30,000, and the employer matches it at ₹30,000 a month. Her annual employee contribution is ₹3,60,000, which is well above the ₹2.5L threshold. Under section 9(11AA), from AY 2022-23 the interest attributable to the excess contribution is taxable. The excess is ₹3,60,000 minus ₹2,50,000, which is ₹1,10,000. At the EPF interest rate of 8.25% for FY 2025-26, the taxable interest on that excess is ₹1,10,000 multiplied by 8.25%, which is ₹9,075 for the year, and that amount is added to her income from other sources in the year it accrues, even though she never withdraws the balance. Her employee share of ₹3,60,000 also cannot be fully covered by 80C, because the ceiling is ₹1.5L, and the new regime gives no 80C relief at all. If Sneha leaves her job after only four years and withdraws the balance, the accumulated interest becomes taxable at her slab rate and 10% TDS is deducted at source, rising to 20% if she does not quote her PAN. If she stays for five years of continuous service, the entire balance, including the interest, is exempt under section 10(12), except for the 9(11AA) interest on the excess contribution. Sneha tracks her contribution against the ₹2.5L line every year, because high earners who silently cross it receive an assessment notice for undeclared interest income. A quick call with us dials in the final figure. Sneha also monitors the EPF interest credited each month, because the 9(11AA) taxable interest is reported under 'income from other sources' in the year it accrues, and the Form 26AS will not show it — she must declare it herself. If she opts for the new regime, the 80C deduction on her employee share disappears, so she weighs the EPF against her other 80C investments when choosing regimes. Her employer's share of ₹3,60,000 is exempt under section 10(12) and never enters her income, which is a point many employees misunderstand when they read their annual EPF statement. If she leaves the job and transfers the PF to her new employer's account without withdrawal, the five-year continuity is preserved and the tax-free treatment continues. A quick call with us dials in the final figure.