Tax Treatment of Provident Fund (PF) Contributions, Interest, And Withdrawals for Calculating Taxable Salary Income

Salaries, Tax Ready Reckoner

Here’s a detailed table summarizing the tax treatment of Provident Fund (PF) contributions, interest, and withdrawals for calculating taxable salary income under the Income Tax Act, 1961 (as of 2025):

Tax Treatment of Provident Funds in India

PROVIDENT FUND TYPE	EMPLOYEE’S CONTRIBUTION	EMPLOYER’S CONTRIBUTION	INTEREST EARNED	WITHDRAWAL RULES
Statutory PF (SPF)	– Tax-free (eligible for Section 80C deduction up to ₹1.5L/year).	– Fully exempt from tax.	– Fully exempt (if employee contribution ≤ ₹2.5L/year; ₹5L for govt. employees without employer contribution).	– Fully exempt on withdrawal (no conditions).
Recognized PF (RPF/EPF)	– Tax-free (Section 80C deduction up to ₹1.5L/year). – Taxable if contribution > ₹2.5L/year (₹5L for govt. employees).	– Exempt up to 12% of salary (Basic + DA). – Taxable as perquisite if >12% or combined employer contributions (RPF+NPS+ Superannuation) > ₹7.5L/year.	– Exempt up to 9.5% p.a. – Taxable on excess contributions (e.g., interest on employee’s contribution > ₹2.5L/year).	– Tax-free if withdrawn after 5 years of service. – Taxable + 10% TDS if withdrawn before 5 years (unless amount < ₹50,000).
Unrecognized PF (UPF)	– No Section 80C benefit (already taxed as salary).	– Not taxed annually but taxable at withdrawal.	– Taxable as “Income from Other Sources” at withdrawal.	– Employee’s contribution: Non-taxable. – Employer’s contribution + interest: Taxable as “Salary Income”. – Interest on employee’s contribution: Taxable as “Other Income”.
Public PF (PPF)	– Tax-free (Section 80C deduction up to ₹1.5L/year).	– Not applicable (no employer contribution).	– Fully exempt.	– Tax-free after 15 years (EEE status).

Key Notes

RPF/EPF Thresholds:
- Employee: ₹2.5L/year (₹5L for govt. employees without employer contribution).
- Employer: ₹7.5L/year (combined for RPF+ NPS+ Superannuation).
UPF Conversion to RPF:
- Transferred balance (employer’s share + interest) is taxable as salary incomein the conversion year.
TDS on Early Withdrawal:
- 10% TDSif withdrawn before 5 years (if PAN linked; else 20%).
Interest Taxation:
- RPF/EPF: Tax-free if within limits; taxable on excess.
- UPF: Always taxable at withdrawal.
PPF:
- No employer contribution; EEE (Exempt-Exempt-Exempt)

Example Scenarios

CASE	TAX IMPLICATION
Employee contributes ₹3L/year to RPF	Interest on ₹50K (excess over ₹2.5L) is taxable.
Employer contributes ₹8L/year (RPF+NPS)	₹50K (excess over ₹7.5L) taxable as perquisite.
UPF balance of ₹10L converted to RPF	Employer’s share (₹6L) taxed as salary income.