My client's EPF interest certificate now shows a taxable interest figure and the return utility is picking it up. Where does that come from, is the threshold two and a half lakhs or five lakhs for him, and from when does it apply?
It comes from the two provisos added to each of s.10(11) and s.10(12). The exemption does not apply to interest accrued during the previous year on so much of the person's own contribution as exceeds two lakh and fifty thousand rupees in any previous year in that fund, made on or after 1 April 2021; and the second proviso substitutes five lakh rupees for that figure where the contribution is to a fund in which there is NO contribution by the employer. So an ordinary EPF member whose employer contributes is on the Rs. 2,50,000 threshold, and a member of a fund to which the employer does not contribute — the General Provident Fund pattern — is on the Rs. 5,00,000 threshold. The computation is prescribed by Rule 9D, which requires separate taxable and non-taxable contribution accounts to be maintained within the provident fund account during previous year 2021-22 and all subsequent previous years, and which was inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 with effect from 1 April 2022. Both provisos were inserted by clause (d) of section 6 of the Finance Act, 2021, with effect from 1 April 2022, so they first bite in assessment year 2022-23 even though the contributions they reach are those made on or after 1 April 2021.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2022-04-01, reported as Income-tax Act, 1961, ss.10(11) and 10(12), as printed on the departmental Year 2025 page; Income-tax Rules, 1962, rule 9D, as printed on the departmental rule page (no Year stamp), inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 w.e.f. 1 April 2022. It bears on section 10(11), section 10(12), section Rule 9D, section 17(2)(vii) of the Income Tax Act 1961, in Salary & Perquisites and Capital Gains Exemptions matters.
This is the provision that turned the provident fund from a wholly tax-free vehicle into a partly taxable one, and it is easy to get the wrong way round. The five-lakh threshold is the HIGHER one and it applies where the employer does NOT contribute; the two-and-a-half-lakh threshold is the default and applies where the employer does. Practitioners who assume the higher figure belongs to the private-sector employee have it exactly backwards. Four further points matter in practice. First, the threshold bites on the CONTRIBUTION, not on the interest: what is taxed is the interest accrued on the excess contribution, not the excess contribution itself, and not interest on the balance built up before 1 April 2021. Second, Rule 9D's Explanation makes the non-taxable contribution account start from the closing balance as on 31 March 2021, so the entire pre-existing corpus and the interest on it stay outside the charge; only contributions from previous year 2021-22 onwards can feed the taxable account. Third, the taxable and non-taxable accounts are each reduced by withdrawals, so a withdrawal pattern changes the arithmetic and the fund's own certificate has to be checked rather than assumed. Fourth, the mechanism is annual and cumulative: once an excess contribution enters the taxable contribution account, the interest on it and on the interest already credited to that account continues to be taxable in later years. Note that these provisos sit inside the exemption clauses, so the charge falls under income from other sources on the interest and not as salary; and note that they are separate from s.17(2)(vii), which taxes the EMPLOYER's contribution above Rs. 7,50,000 as a perquisite — the two operate on different sides of the fund and both can apply in the same year.
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As printed on the Year 2025 departmental page, clause (11) of section 10 exempts any payment from a provident fund to which the Provident Funds Act, 1925 applies or from any other provident fund set up by the Central Government and notified by it, subject to a first proviso that the clause shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be prescribed, and to a second proviso that if the contribution by such person is in a fund in which there is no contribution by the employer of such person, the first proviso shall have effect as if for the words "two lakh and fifty thousand rupees" the words "five lakh rupees" had been substituted. Clause (12), which exempts the accumulated balance due and becoming payable to an employee participating in a recognised provident fund to the extent provided in rule 8 of Part A of the Fourth Schedule, carries two provisos in identical terms. Rule 9D of the Income-tax Rules, 1962 provides that for the purposes of the first and second provisos to clauses (11) and (12) of section 10 the taxable interest shall be computed as the interest accrued during the previous year in the taxable contribution account; that separate accounts within the provident fund account shall be maintained during the previous year 2021-22 and all subsequent previous years for taxable and non-taxable contribution; that the non-taxable contribution account is the aggregate of the closing balance in the account as on 31 March 2021, contributions made during previous year 2021-22 and subsequent previous years which are not included in the taxable contribution account, and interest accrued on both, as reduced by withdrawals; that the taxable contribution account is the aggregate of contributions made in a previous year during previous year 2021-22 and subsequent previous years which are in excess of the threshold limit and interest accrued on them, as reduced by withdrawals; and that the threshold limit means five lakh rupees if the second proviso to clause (11) or clause (12) of section 10 is applicable and two lakh and fifty thousand rupees in other cases. The departmental page prints against the rule the footnote "Inserted by the IT (Twenty-fifth Amdt.) Rules, 2021, w.e.f. 1-4-2022".
Interest accrued during a previous year on the employee's own provident fund contribution is outside the exemption in s.10(11) and s.10(12) to the extent it relates to contributions exceeding the threshold made on or after 1 April 2021. There are two thresholds: five lakh rupees where the fund is one in which the employer makes no contribution, and two lakh and fifty thousand rupees in every other case. The computation is prescribed by Rule 9D, which requires a taxable contribution account and a non-taxable contribution account to be maintained within the provident fund account from previous year 2021-22 onwards, the non-taxable account opening with the closing balance as on 31 March 2021 and each account being reduced by withdrawals, and the taxable interest being the interest accrued during the previous year in the taxable contribution account. Rule 9D was inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 with effect from 1 April 2022. The provisos to clauses (11) and (12) were both inserted by clause (d) of section 6 of the Finance Act, 2021, with effect from 1 April 2022.
Not applicable — this is a statement of statutory text and of a rule, both read this pass. No judicial reasoning is involved, and no judicial decision construing Rule 9D was located.
The threshold limit shall mean: (i) five lakh rupees, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and (ii) two lakh and fifty thousand rupees in other cases.
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Handle my notice → Ask a CA on WhatsAppIt comes from the two provisos added to each of s.10(11) and s.10(12). The exemption does not apply to interest accrued during the previous year on so much of the person's own contribution as exceeds two lakh and fifty thousand rupees in any previous year in that fund, made on or after 1 April 2021; and the second proviso substitutes five lakh rupees for that figure where the contribution is to a fund in which there is NO contribution by the employer. So an ordinary EPF member whose employer contributes is on the Rs. 2,50,000 threshold, and a member of a fund to which the employer does not contribute — the General Provident Fund pattern — is on the Rs. 5,00,000 threshold. The computation is prescribed by Rule 9D, which requires separate taxable and non-taxable contribution accounts to be maintained within the provident fund account during previous year 2021-22 and all subsequent previous years, and which was inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 with effect from 1 April 2022. Both provisos were inserted by clause (d) of section 6 of the Finance Act, 2021, with effect from 1 April 2022, so they first bite in assessment year 2022-23 even though the contributions they reach are those made on or after 1 April 2021. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10(11), section 10(12), section Rule 9D, section 17(2)(vii) of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, ss.10(11) and 10(12), as printed on the departmental Year 2025 page; Income-tax Rules, 1962, rule 9D, as printed on the departmental rule page (no Year stamp), inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 w.e.f. 1 April 2022. This is the provision that turned the provident fund from a wholly tax-free vehicle into a partly taxable one, and it is easy to get the wrong way round. The five-lakh threshold is the HIGHER one and it applies where the employer does NOT contribute; the two-and-a-half-lakh threshold is the default and applies where the employer does. Practitioners who assume the higher figure belongs to the private-sector employee have it exactly backwards. Four further points matter in practice. First, the threshold bites on the CONTRIBUTION, not on the interest: what is taxed is the interest accrued on the excess contribution, not the excess contribution itself, and not interest on the balance built up before 1 April 2021. Second, Rule 9D's Explanation makes the non-taxable contribution account start from the closing balance as on 31 March 2021, so the entire pre-existing corpus and the interest on it stay outside the charge; only contributions from previous year 2021-22 onwards can feed the taxable account. Third, the taxable and non-taxable accounts are each reduced by withdrawals, so a withdrawal pattern changes the arithmetic and the fund's own certificate has to be checked rather than assumed. Fourth, the mechanism is annual and cumulative: once an excess contribution enters the taxable contribution account, the interest on it and on the interest already credited to that account continues to be taxable in later years. Note that these provisos sit inside the exemption clauses, so the charge falls under income from other sources on the interest and not as salary; and note that they are separate from s.17(2)(vii), which taxes the EMPLOYER's contribution above Rs. 7,50,000 as a perquisite — the two operate on different sides of the fund and both can apply in the same year. If it applies to you, the first step is this: Establish whether the employer contributes to the same fund. If it does, the threshold is Rs. 2,50,000. If it does not, the threshold is Rs. 5,00,000. Do not assume the higher figure for a private-sector client.
As printed on the Year 2025 departmental page, clause (11) of section 10 exempts any payment from a provident fund to which the Provident Funds Act, 1925 applies or from any other provident fund set up by the Central Government and notified by it, subject to a first proviso that the clause shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be prescribed, and to a second proviso that if the contribution by such person is in a fund in which there is no contribution by the employer of such person, the first proviso shall have effect as if for the words "two lakh and fifty thousand rupees" the words "five lakh rupees" had been substituted. Clause (12), which exempts the accumulated balance due and becoming payable to an employee participating in a recognised provident fund to the extent provided in rule 8 of Part A of the Fourth Schedule, carries two provisos in identical terms. Rule 9D of the Income-tax Rules, 1962 provides that for the purposes of the first and second provisos to clauses (11) and (12) of section 10 the taxable interest shall be computed as the interest accrued during the previous year in the taxable contribution account; that separate accounts within the provident fund account shall be maintained during the previous year 2021-22 and all subsequent previous years for taxable and non-taxable contribution; that the non-taxable contribution account is the aggregate of the closing balance in the account as on 31 March 2021, contributions made during previous year 2021-22 and subsequent previous years which are not included in the taxable contribution account, and interest accrued on both, as reduced by withdrawals; that the taxable contribution account is the aggregate of contributions made in a previous year during previous year 2021-22 and subsequent previous years which are in excess of the threshold limit and interest accrued on them, as reduced by withdrawals; and that the threshold limit means five lakh rupees if the second proviso to clause (11) or clause (12) of section 10 is applicable and two lakh and fifty thousand rupees in other cases. The departmental page prints against the rule the footnote "Inserted by the IT (Twenty-fifth Amdt.) Rules, 2021, w.e.f. 1-4-2022". The matter was decided on 2022-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Interest accrued during a previous year on the employee's own provident fund contribution is outside the exemption in s.10(11) and s.10(12) to the extent it relates to contributions exceeding the threshold made on or after 1 April 2021. There are two thresholds: five lakh rupees where the fund is one in which the employer makes no contribution, and two lakh and fifty thousand rupees in every other case. The computation is prescribed by Rule 9D, which requires a taxable contribution account and a non-taxable contribution account to be maintained within the provident fund account from previous year 2021-22 onwards, the non-taxable account opening with the closing balance as on 31 March 2021 and each account being reduced by withdrawals, and the taxable interest being the interest accrued during the previous year in the taxable contribution account. Rule 9D was inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 with effect from 1 April 2022. The provisos to clauses (11) and (12) were both inserted by clause (d) of section 6 of the Finance Act, 2021, with effect from 1 April 2022.
Not applicable — this is a statement of statutory text and of a rule, both read this pass. No judicial reasoning is involved, and no judicial decision construing Rule 9D was located. In the words reproduced by the source cited on this page: "The threshold limit shall mean: (i) five lakh rupees, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and (ii) two lakh and fifty thousand rupees in other cases."
It was decided by the CBDT Circulars & Instructions on 2022-04-01 and is reported as Income-tax Act, 1961, ss.10(11) and 10(12), as printed on the departmental Year 2025 page; Income-tax Rules, 1962, rule 9D, as printed on the departmental rule page (no Year stamp), inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 w.e.f. 1 April 2022. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 10(11), section 10(12), section Rule 9D, section 17(2)(vii), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Interest accrued during a previous year on the employee's own provident fund contribution is outside the exemption in s.10(11) and s.10(12) to the extent it relates to contributions exceeding the threshold made on or after 1 April 2021. There are two thresholds: five lakh rupees where the fund is one in which the employer makes no contribution, and two lakh and fifty thousand rupees in every other case. The computation is prescribed by Rule 9D, which requires a taxable contribution account and a non-taxable contribution account to be maintained within the provident fund account from previous year 2021-22 onwards, the non-taxable account opening with the closing balance as on 31 March 2021 and each account being reduced by withdrawals, and the taxable interest being the interest accrued during the previous year in the taxable contribution account. Rule 9D was inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 with effect from 1 April 2022. The provisos to clauses (11) and (12) were both inserted by clause (d) of section 6 of the Finance Act, 2021, with effect from 1 April 2022. It arises in Salary & Perquisites and Capital Gains Exemptions matters, on section 10(11), section 10(12), section Rule 9D, section 17(2)(vii) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Take the employee's own contribution for the year, not the total credit to the account, and compare it with the threshold; only the excess feeds the taxable contribution account. Ask the fund for the split between the taxable and non-taxable contribution accounts under Rule 9D, and check that the non-taxable account opens with the closing balance as on 31 March 2021. Do not tax interest on the pre-1 April 2021 corpus, and do not tax the excess contribution itself; what is chargeable is the interest accrued during the previous year in the taxable contribution account. Adjust both accounts for withdrawals during the year, as the Explanation requires, before accepting the fund's taxable interest figure. Check s.17(2)(vii) separately in the same computation — the employer-side Rs. 7,50,000 aggregate ceiling is a different provision and both can bite in one year. For years before previous year 2021-22 there is nothing to compute: the provisos operate on contributions made on or after 1 April 2021 and Rule 9D's accounts begin with previous year 2021-22.
Still good law. The two thresholds were read on three independent routes that agree: the provisos to clauses (11) and (12) as printed on the departmental Year 2025 edition of section 10; Explanation clause (c) to Rule 9D, read twice; and the Department's current explanatory page on retirement benefits, which states on its face that it is amended up to the Finance Act 2026 and describes the thresholds the same way round. That is the best evidence obtainable on this pass that the position holds for tax years up to AY 2026-27. The amending Act has now been read: clause (d) of section 6 of the Finance Act, 2021 inserted both provisos in both clauses with effect from 1 April 2022. The notification behind the Income-tax (Twenty-fifth Amendment) Rules, 2021 was not retrieved, so Rule 9D's commencement rests on the footnote printed on the departmental rule page, read twice on two different URL spellings. No judicial treatment of these provisos or of Rule 9D was located; a phrase search on "taxable contribution account" returned nothing. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
SOURCING AND WHAT I COULD NOT ESTABLISH. Clauses (11) and (12) with both provisos to each were transcribed this pass from https://incometaxindia.gov.in/w/section-10-65, which printed the Act name "Income-tax Act, 1961", the heading "Incomes not included in total income" and the stamp "Year: 2025". The departmental section 10 page carries no amendment footnote on clauses (11) or (12), so the amending Act cannot be read off it. It was established instead from the Finance Act itself: section 6 of the Finance Act, 2021, transcribed in full from https://indiankanoon.org/doc/186229465/, provides at clause (d) "with effect from the 1st day of April, 2022,— (i) in clause (11), the following proviso shall be inserted", followed by the two-lakh-fifty-thousand proviso and the further proviso substituting "five lakh rupees" where the employer does not contribute, and at (d)(ii) the identically worded provisos for clause (12). The commencement of the provisos is therefore 1 April 2022 (assessment year 2022-23); the 1 April 2021 date inside the provisos governs which CONTRIBUTIONS they reach and is a different thing. RULE 9D was read twice, on https://incometaxindia.gov.in/w/rule-9d and again on https://www.incometaxindia.gov.in/w/rule-9d; both printed the instrument name "Income-tax Rules, 1962" and the heading "Calculation of taxable interest relating to contribution in a provident fund or recognised provided fund, exceeding specified limit" (the misprint "provided" for "provident" is in the departmental heading itself), both printed the rule in identical words, and both printed the footnote "Inserted by the IT (Twenty-fifth Amdt.) Rules, 2021, w.e.f. 1-4-2022". As the brief records, DEPARTMENTAL RULE PAGES CARRY NO "Year:" STAMP, and neither of these did, so the rule cannot be dated the way a section can and I make no claim to have dated it other than by its own footnote. I did NOT retrieve the notification behind the Twenty-fifth Amendment Rules: https://incometaxindia.gov.in/communications/notification/notification_95_2021.pdf and .../notification-95-2021.pdf both returned HTTP 404, so no notification number or gazette date is stated. THE TWO THRESHOLDS were corroborated on a third, independent route: the Department's current explanatory page https://www.incometaxindia.gov.in/w/taxability-of-retirement-benefits, which states on its face that it is amended up to the Finance Act 2026, sets out for both the recognised and the statutory provident fund that interest is taxable on "the employee's contribution above Rs. 5 lakh, in case no contribution is made by employer" and on "the employee's contribution above Rs. 2.5 lakh, in case employer has also contributed to the fund" — the same way round as the statutory provisos and as Explanation (c) to Rule 9D. A NARROW STATED NEGATIVE: an indiankanoon search on the phrase "taxable contribution account" together with the words provident fund interest returned no matching results, so no judicial decision construing Rule 9D's two-account mechanism was located this pass. That is a statement about that search, not a claim that no such decision exists. 'decided_on' is the COMMENCEMENT DATE of the provisos, 1 April 2022, as fixed by clause (d) of section 6 of the Finance Act, 2021; it is not a decision date, and the 1 April 2021 date inside the provisos governs which contributions they reach and is a different thing. 'bench' and 'favours' are inapplicable to a statutory entry. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Interest accrued during a previous year on the employee's own provident fund contribution is outside the exemption in s.10(11) and s.10(12) to the extent it relates to contributions exceeding the threshold made on or after 1 April 2021. There are two thresholds: five lakh rupees where the fund is one in which the employer makes no contribution, and two lakh and fifty thousand rupees in every other case. The computation is prescribed by Rule 9D, which requires a taxable contribution account and a non-taxable contribution account to be maintained within the provident fund account from previous year 2021-22 onwards, the non-taxable account opening with the closing balance as on 31 March 2021 and each account being reduced by withdrawals, and the taxable interest being the interest accrued during the previous year in the taxable contribution account. Rule 9D was inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 with effect from 1 April 2022. The provisos to clauses (11) and (12) were both inserted by clause (d) of section 6 of the Finance Act, 2021, with effect from 1 April 2022.
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