How Is Income Tax On GPF Interest Is Calculated?
Updated on: Mar 21st, 2023
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22 min read
As per the 2021 Budget, you are liable to pay income tax on General Provident Fund (GPF) interest above Rs 5 lakh in a financial year. To avoid complications while implementing this rule, CBDT implemented Rule 9 of Income Tax Rules, 1962 in the financial year 2021-2022.
Under this rule, you should have two GPF accounts. If you earn a GPF contribution above Rs 5 lakh in a single financial year, it should be deposited in your second account. Thus, interest earned on your first GPF account will be free from taxation.
Here’s more on the taxability of GPF interest!
How to Calculate Taxable and Non-taxable Interest under GPF?
Under Section 10(11) and Section 10(12) of the Finance Act of 2021, GPF contribution above Rs 5 lakh in the previous year is not exempted from tax applicability. Thus, the Central Board of Direct Taxes (CBDT) mandated two GPF accounts for every employee.
As per the Notification No. 95/2021 of August 31, 2021, you need to maintain a taxable and non-taxable GPF account. It will help in seamless tax calculation and help you get GPF exemption in the income tax section.
Here’s a better interpretation of the taxable and non-taxable interest account:
- Taxable Contribution Account
Employee contribution in GPF account exceeding Rs 5 lakh within a financial year from the FY2021-2022 is taxable. GPF taxability is applicable on interest accrued thereon and any withdrawal from your GPF account.
- Non-taxable Contribution Account
If your closing balance on March 31, 2021, and the GPF contributions from FY2021-2022 onwards are below Rs 5 lakh, you can avail tax exemption.
Understand Taxable and Non-taxable Interests with an Example
Let’s assume Mr. Gupta contributes Rs 55,000 to his GPF account each month. Thus, the taxable and non-taxable interest on GPF within Rs 5 lakh threshold will be calculated as follows:
Contribution for the month of | Mr. Gupta’s monthly contribution(in Rs) | Cumulative balance at month end (in Rs) | Interest @7.1% p.a. on balance at month end | Taxable Interest (in Rs) | Non-taxable Interest (in Rs) |
Apr-22 | 55000 | 55000 | 325 | 325 | |
May-22 | 55000 | 110000 | 651 | 651 | |
June-22 | 55000 | 165000 | 976 | 976 | |
July-22 | 55000 | 220000 | 1302 | 1302 | |
Aug-22 | 55000 | 275000 | 1627 | 1627 | |
Sep-22 | 55000 | 330000 | 1953 | 1953 | |
Oct-22 | 55000 | 385000 | 2278 | 2278 | |
Nov-22 | 55000 | 440000 | 2603 | 2603 | |
Dec-22 | 55000 | 495000 | 2929 | 2929 | |
Jan-23 | 500000 | 2958 | 2958 | ||
55000 | 550000 | 296 | 296 | ||
Feb-23 | 55000 | 605000 | 3580 | 621 | 2958 |
Mar-23 | 55000 | 660000 | 3905 | 947 | 2958 |
Total | 660000 | 25383 | 1864 | 23519 |
Maintainable Accounts in GPF by the Authorised Department - Explained
Here's a detailed interpretation of the accounts that need to be maintained in GPF:
Particulars for FY 2021-22
| Taxable Amount (in Rs) | Non-taxable Amount (in Rs) | Total Amount (in Rs) |
Opening balance as on April 1, 2022 | 3000000 | 3000000 | |
Interest Accrued on Opening Balance | 213000
| 213000 | |
Contribution made up to threshold limit /excess of limited in FY 2021-22 | 160000 | 500000 | 660000 |
Interest Accrued on the amount within the threshold/ above the threshold limit | 1864 | 23519 | 25383 |
Closing Balance as on 31/03/2022. | 3736519 | 3736519 | 3898383 |
In reference to the above chart, the accumulated GPF balance as on March 31, 2021, is Rs 30 lakh. The GPF account holder made an additional contribution of Rs 1,60,000 within the FY 2021-2022 at an interest rate of 7.1% p.a. Thus, his GPF interest taxable amount is Rs 1864.
Final Word
Now that you know how to calculate income tax on GPF interest, you can easily assess your payable tax. However, if you want to be exempt from paying the tax amount or reduce it, always maintain two separate GPF accounts as per Rule 9D of the Income Tax Act.
One of the accounts should be for taxable GPF interest and the other for non-taxable GPF interest. Whenever your GPF contribution exceeds Rs 5 lakh, you can transfer the amount to a taxable account and exempt the income tax. So, you are liable to pay tax for a single GPF account only.
Frequently Asked Questions
What is the eligibility for GPF?
Both permanent and temporary government employees are eligible for GPF. A temporary government employee can opt for GPF after one year of his/her service. Even retired government pensioners are also eligible for GPF if they are re-appointed. Any establishment covered under EPF Act, 1952, is eligible for the same.
What is the interest rate on GPF?
According to the income tax guidelines, the interest rate of GPF is counted every quarter. The levied interest rate is 7.1% for FY 2022-2023.
Who can withdraw the GPF balance in case of the account holder’s death?
In case of nomination, the nominee can withdraw the GPF balance in case of account holder’s demise. However, if there is no nominee, family members of the account holder, like an adult son or grandson, can withdraw the GPF. Moreover, married daughters of the account holder’s deceased son can also withdraw the balance if their husbands are alive.
What is GPF Rule-16 about?
As per the Rule-16 of GPF, the sanctioning authority approves the withdrawal of an amount exceeding the stated threshold under the following circumstances: a) considering the objective of the withdrawal, b) the subscriber’s status, and, c) considering his amount to credit in Fund 1.
What is the ceiling limit in GPF?
As per the DOPT (Department of Personnel & Training), ceiling limit is the maximum subscription limit to the GPF (General Provident Fund) for a financial year. The ceiling limit of GPF is Rs 5 lakh for the current financial year.
Quick Summary
2021 Budget requires income tax on GPF interest above Rs 5 lakh. Rule 9 of Income Tax Rules mandates 2 GPF accounts, one for taxable interest and the other for non-taxable. Taxable on interest over Rs 5 lakh, in previous year. CBDT Notification No. 95/2021 requires maintaining separate accounts. Interest calculated above Rs 5 lakh threshold. GPF Rule-16 allows withdrawal above threshold by sanctioning authority.
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