EPF & PF
PF Interest Above ₹2.5 Lakh: How It's Taxed and Where It Shows in AIS
If you put more than ₹2.5 lakh a year into PF, including VPF, the interest on the excess is taxable every year. How it is worked out, a ₹ example, AIS and the ITR.
myutils.me8 min read
If your own contributions to PF, including any voluntary PF (VPF), cross ₹2.5 lakh in a financial year, the interest earned on the excess is taxable every year as income from other sources. You pay it whether or not you withdraw anything. The limit is ₹5 lakh for a fund where the employer does not contribute, such as a government employee's GPF.
At the 8.25% EPF rate, ₹1 lakh contributed above the limit earns about ₹8,250 a year of taxable interest. The tax is small next to the balance, but it has to be reported, and the AIS will not reliably remind you.
Where the rule comes from
Budget 2021 added a proviso to the exemptions for provident fund payments (section 10(11) and 10(12) of the 1961 Act). Interest accrued in a year stopped being exempt to the extent it relates to contributions of more than ₹2,50,000 a year made on or after 1 April 2021. It has applied from AY 2022-23. CBDT then prescribed the method in Rule 9D of the Income-tax Rules, 1962: from FY 2021-22 the PF account is split into a non-taxable contribution account and a taxable contribution account, and the interest on the taxable one is taxed each year.
From 1 April 2026 the Income-tax Act, 2025 and the Income-tax Rules, 2026 apply. The same limits are now in Schedule II of the 2025 Act (entries 3 and 4, column C): interest attributable to contributions made from 1 April 2021 that exceed ₹2,50,000 in a year, or ₹5,00,000 where the employer doesn't contribute, is not excluded from total income. The method moved from Rule 9D to Rule 277 of the Income-tax Rules, 2026, which keeps the same split into a taxable and a non-taxable contribution account.
Which year uses which law
- Interest for FY 2025-26 and earlier: the 1961 Act, reported in returns up to AY 2026-27.
- Interest for Tax Year 2026-27 onwards: the 2025 Act, reported in the return filed in 2027.
What counts towards ₹2.5 lakh
- Counts: your own 12% contribution and any VPF you choose to add.
- Doesn't count: the employer's contribution. Employer contributions have a separate cap (see below).
- Only contributions from 1 April 2021. Money already in your account on 31 March 2021, and its future interest, stays in the non-taxable account.
- Per financial year. The test is applied afresh each year, and an unused part of the limit does not carry forward.
A salaried member with a basic salary up to about ₹1,73,600 a month contributes less than ₹2.5 lakh at 12%, so this rule bites mostly through VPF or a high basic salary.
Worked example
Arjun's basic salary is ₹1,00,000 a month. He contributes 12% (₹12,000) and also puts ₹15,000 a month into VPF.
| Item | Per year |
|---|---|
| His contributions (₹27,000 × 12) | ₹3,24,000 |
| Limit | ₹2,50,000 |
| Goes to the taxable account | ₹74,000 |
Suppose he has done this since FY 2025-26, so his taxable account stood at about ₹80,000 on 1 April 2026 (last year's excess plus its interest).
| Tax Year 2026-27 | Amount |
|---|---|
| Interest on the opening taxable balance (₹80,000 × 8.25%) | ₹6,600 |
| Interest on this year's ₹74,000 excess | A smaller amount, depending on when it was credited |
| Tax at 30% plus 4% cess on ₹6,600 | about ₹2,059 |
The figure grows every year, because the taxable account keeps the new excess and its own interest. The 8.25% rate is the one declared for 2025-26. The rate for 2026-27 will be known only after the year ends, so this is an estimate.
His employer's 12% does not enter the ₹2.5 lakh calculation at all.
The separate ₹7.5 lakh cap on employer contributions
A different rule limits the employer's contributions. If the employer's total contributions in a year to your PF, NPS and superannuation fund exceed ₹7.5 lakh, the excess is taxed as a perquisite. Under the 2025 Act this monetary ceiling is in section 17(1)(h). The Finance Bill, 2026 relied on it to drop the old "employer contribution above 12% of salary" test from Schedule XI from Tax Year 2026-27. The separate rule that interest credited above the notified rate is treated as your income stays in Schedule XI.
Most salaried people stay under ₹7.5 lakh. Your Form 16 shows whether your employer taxed any of it.
Where the taxable interest shows
EPFO passbook. For members who cross the limit, EPFO keeps the two accounts apart, and the passbook site shows the taxable part separately. Log in at the EPFO passbook portal with an activated UAN and look for the taxable figures for the year.
AIS and Form 26AS. If tax was deducted on this interest, the TDS appears in your AIS and Form 26AS with EPFO as the deductor. Don't rely on AIS to show the interest itself. It may not, and the interest is taxable whether or not it appears there. The passbook is the record to use.
Private PF trusts. If your employer runs an exempted PF trust, the trust keeps your account and calculates the taxable interest. Ask the trust for the figure.
See AIS vs TIS vs Form 26AS for reading the TDS entries, and AIS processed value vs accepted value if an AIS figure looks wrong.
How to report it in your return
- Take the taxable interest for the year from the passbook or the trust.
- Report it under Income from Other Sources. If your ITR form has a specific option under other sources for taxable provident fund interest, use it; otherwise report it as other interest income.
- Claim any TDS shown in Form 26AS and AIS.
The timing catch. The rule taxes interest accrued during the year (Rule 9D for 2025-26, Rule 277 from Tax Year 2026-27). EPFO credits a year's interest only after the rate is approved, months after the year ends: the 2024-25 interest reached all members by July 2025. So many people filed for AY 2026-27 before the 2025-26 interest appeared in the passbook. If you left out taxable PF interest for 2025-26, a revised return can add it while the time limit is open. See deadlines left for AY 2026-27.
myutils.me shows the AIS, TIS and tax deposits of each PAN you add, including any TDS EPFO reported, after you add the PAN or press Sync. It is independent and not affiliated with the Income Tax Department. It does not calculate PF interest.
FAQ
Is all my PF interest taxable if I contribute more than ₹2.5 lakh?
No. Only the interest on the part of your contributions above ₹2.5 lakh in each year, made from 1 April 2021 onwards. Interest on the first ₹2.5 lakh and on the pre-April 2021 balance stays exempt, subject to the usual withdrawal conditions.
Does the employer's 12% count towards ₹2.5 lakh?
No. Only your own contribution and VPF count. The employer's share has a separate ₹7.5 lakh cap across PF, NPS and superannuation.
Does VPF count towards the ₹2.5 lakh?
Yes. Voluntary PF is your own contribution, so it is added to your 12% share. VPF is the most common reason salaried members cross the limit.
Does this apply to PPF?
No. PPF is a separate scheme with its own limit on deposits. This rule covers provident funds such as EPF, VPF and GPF.
My AIS doesn't show any PF interest. Do I still report it?
Yes. AIS is a summary of what reporting entities filed. The tax depends on the interest that accrued, which the EPFO passbook shows.
Sources
- Memorandum to the Finance Bill, 2021: taxability of interest on provident fund contributions above ₹2.5 lakh
- Memorandum to the Finance Bill, 2026: rationalisation of Schedule XI and the employer contribution cap under section 17(1)(h)
- PIB, 3 February 2026: EPFO on the income-tax regime for provident funds under Schedule XI of the Income-tax Act, 2025
- PIB, 2 March 2026: CBT recommends 8.25% interest for 2025-26
- EPFO member passbook
- EPFO FAQs on the wage ceiling revision (September 2026): EPF interest of 8.25% for FY 2025-26
- PIB, 13 October 2025: 2024-25 interest credited to all members by July 2025
- Income-tax Act, 2025, as amended by the Finance Act, 2026: Schedule II (entries 3 and 4) and Schedule XI
- Income-tax Rules, 2026: rule 277, notified 20 March 2026
Topics
- PF Interest Tax
- VPF
- Rule 277
- Income from Other Sources
- AIS
- AY 2026-27
myutils.me
Written by the team behind myutils.me, a free, independent app that brings ITR status, refunds and AIS/TIS for each PAN into one dashboard. Check anything important against the Income Tax portal before you act on it.
