In today’s post we see the taxation issue related to EPF. Lot of employees simply either neglect it or will not try to understand it. But better to understand it and make use of tax benefits available.
Latest News-EPF Universal Account Number (UAN)-What it is?
First let us understand the types of EPF.
1) Recognized EPF-This scheme applies to an organisation or factory where employee count is 20 or more. This scheme mainly aims at promoting and securing the well being of the employees by way of provident fund (EPF), family pension (EPS) and insurance to them (EDLI). Once any organisation or factory enters into this scheme, it must continue irrespective of number of employees falls below 20 members. Employees drawing salary upto Rs.6,500 have to be member of this scheme. Employees who are earning more than Rs.6,500 have option either to join or not.
2) Unrecognized EPF-This is the scheme started by employer and employee which is not recognized by The Commissioner of Income Tax. Employee count below 20 members are usually comes under this scheme.
3) Statutory EPF-This scheme is mainly meant for government and semi government organizations, local authorities, universities, recognized educational institutions, railways, airlines etc.
Below table show the taxability of each type of EPF schemes mentioned above.
1) Salary for this purpose means basic salary and dearness allowance and commission as a percentage of turnover.
2) Amount received is fully exempt in case of an employee who is in continues service for a period of 5 years or more. Full exemption is also available for employees who not completed 5 years because of his ill health, discontinuance of employer’s business or any other reason which is not in control of employee. If account is transferred to new employer then the previous service from whom the account is transferred is also considered as a service period. If none of the above conditions satisfy then the amount will be taxed as unrecognized EPF. Also concessions availed under Sec 80C will be withdrawn.
3) Employee’s own contribution is not taxable but the interest thereon is taxable under “Income from Other Sources”. Both employer’s contribution and interest thereon is taxed as “Income from Salary”.
Hope this made simple understanding about EPF taxation.