The rule
Since 1 April 2021, interest earned on your own PF contributions above ₹2,50,000 a year is taxable as “income from other sources”. The limit is ₹5,00,000 if your employer does not contribute (for example, many government GPF accounts). Employer contributions do not count towards the limit, and interest on the money that was already there before April 2021 is not affected.
| Your monthly basic | Your 12% a year | Above ₹2.5 lakh? |
|---|---|---|
| ₹50,000 | ₹72,000 | No |
| ₹1,00,000 | ₹1,44,000 | No |
| ₹1,73,611 | ₹2,50,000 | Exactly at the limit |
| ₹2,00,000 | ₹2,88,000 | Yes — ₹38,000 above |
So with the standard 12%, it only bites once basic + DA passes about ₹1.74 lakh a month — or earlier if you add a lot of VPF.
How much tax?
EPFO keeps two sub-accounts: a non-taxable one and a taxable one for contributions above the limit. Only the interest on the taxable account is taxed. Example: ₹38,000 above the limit in a year earns roughly ₹1,500 of interest in that year (contributions arrive month by month), rising each year as the taxable account grows. At a 30% slab that is under ₹500 of tax in year one — not a reason to stop, since the rest of the interest stays tax-free.
TDS
EPFO deducts TDS on the taxable interest — 10% if your PAN is linked to your UAN, 20% otherwise. Either way, report the taxable interest in your return every year and pay any difference.
The pre-filled example
Basic ₹2,00,000 a month, age 35, ₹25 lakh already in PF: your own contributions are ₹2,88,000 in the first year, so ₹38,000 falls above the limit. The projected balance at 58 is about ₹7,12,46,186 before any tax on that part of the interest.
And at withdrawal?
The final PF withdrawal is tax-free once you have 5 years of continuous service (including service with previous employers if you transferred your PF). Withdraw earlier and the employer share and interest are taxable, with TDS if the amount is over ₹50,000.
Who is most affected
The rule mainly touches senior professionals with high basic pay and people who use VPF as a large tax-free savings account. For a typical salaried employee with basic under ₹1.5 lakh a month, every rupee of EPF interest remains tax-free. Government employees with GPF (no employer contribution) have the higher ₹5 lakh limit.
If you are near the limit, a simple approach is to keep your total employee contribution, including VPF, at or under ₹2,50,000 a year and put the rest into PPF (₹1.5 lakh limit, tax-free) or other investments. Keep in mind that the taxable part still earns 8.25%, which compares well with a fixed deposit even after tax, so going over the limit is not a disaster — it simply means a small amount of tax each year.
Key EPF figures (checked 5 November 2026)
| Item | Figure |
|---|---|
| Interest rate FY 2025-26 | 8.25% (CBT 2 March 2026) |
| Employee contribution | 12% of basic + DA |
| Employer contribution | 12%: 8.33% EPS (max ₹2,083) + rest to EPF |
| Wage ceiling | ₹25,000 a month from 17 September 2026 (was ₹15,000) |
| Tax-free interest limit | Employee contributions up to ₹2.5 lakh a year (₹5 lakh without employer contribution) |
FAQ
Is EPF interest taxable?
Only the interest on your own contributions above ₹2,50,000 a year (₹5,00,000 if your employer does not contribute). Everything else stays tax-free.
At what basic salary does EPF interest become taxable?
With a 12% contribution, once basic + DA exceeds about ₹1,73,611 a month (₹2,50,000 ÷ 12 ÷ 12%).
How much of my contribution is above the limit on ₹2 lakh basic?
Your 12% is ₹2,88,000 a year, so ₹38,000 is above the ₹2.5 lakh limit.
Sources (checked 5 November 2026): PIB, “Cabinet Approves Higher EPFO Wage Ceiling of Rs. 25,000” (16 September 2026, effective 17 September 2026) and PIB release of 17 September 2026 (12% / 8.33% / 3.67% split); EPFO / Ministry of Labour — 8.25% interest for 2025-26 (CBT meeting 2 March 2026, ratified June 2026; reported by ThePrint and Tribune); Employees’ Provident Funds Scheme 1952 and Employees’ Pension Scheme 1995; Income-tax Act provisions on taxable PF interest above ₹2.5 lakh.