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

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): A Quick Overview

Employees with a basic salary of up to ₹15,000 per month are mandatorily enrolled in the EPF scheme. They contribute 12% of their monthly salary, which is matched by the employer. Those earning above ₹15,000 can opt out at the time of joining, but once enrolled, you cannot opt out later during your employment.

Employees can also choose to contribute more voluntarily, beyond the mandatory 12%, under the Voluntary Provident Fund (VPF). VPF contributions earn the same interest as EPF.

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).

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.