Is Provident Fund (PF) Taxable Under the New Income Tax Regime for FY26?

For most salaried individuals, the Employees’ Provident Fund (EPF) is a reliable and disciplined way to build retirement savings. With an interest rate of 8.25%, it remains one of the best debt-oriented investment tools. 

But with the introduction of the new income tax regime, many are unsure about the tax implications on PF contributions and returns. In this article, we’ll break it down.

Provident Fund (PF) Under the Old vs. New Tax Regime

In the old tax regime, PF contributions were eligible for tax deduction under Section 80C, and the scheme followed an EEE structure — Exempt at the time of investment, Exempt on interest, and Exempt on withdrawal (subject to conditions).

Under the new tax regime, things have changed slightly:

• Employee contributions to EPF are no longer eligible for tax deduction under Section 80C.

• Employer contributions up to 12% of your salary remain tax-exempt, but only up to a combined limit of ₹7.5 lakh per year (including NPS and superannuation funds).

• Interest earned continues to be tax-exempt, but only on contributions up to ₹2.5 lakh per year. Interest on contributions beyond this limit is taxable.

• Withdrawals continue to be tax-free, provided you meet the required conditions (e.g., five years of continuous service).

Can You Withdraw PF via UPI and ATMs?

The Employees’ Provident Fund Organisation (EPFO) is set to roll out instant PF withdrawals through UPI and ATMs by end-May or early June 2025. Members will be able to withdraw up to ₹1 lakh instantly, check balances via UPI apps, and transfer funds seamlessly. Backed by the Ministry of Labour and NPCI, the move aims to boost convenience and financial flexibility, with expanded withdrawal reasons like housing, education, and marriage.

Conclusion

So, is PF taxable under the new tax regime? Not entirely. While you lose the tax deduction on your contributions, employer contributions and interest earnings still enjoy exemptions, albeit with limits. EPF remains a strong retirement savings option, even under the new regime, but with reduced tax advantages compared to the old regime.

Read more on: EPFO: Employers Can Now Pay Old EPF Dues via One-Time Demand Draft

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.