Received your EPF interest late? Do this to avoid tax trouble.
To be sure, if your contribution to EPF is more than ₹ 2.5 lakh in a year ( ₹ 5 lakh for government employees), the interest earned on the excess attracts tax deducted at source (TDS). The TDS rate is 10% if your EPF account is linked to your Permanent Account Number (PAN) and 20% if it is not. The TDS is not deducted in case taxable interest is less than ₹ 5,000.
The delay in crediting interest to EPF accounts creates confusion for members about the correct financial year in which to report and pay tax on the taxable interest. Although the EPFO passbook reflects that interest has accrued up to 31 March of a financial year, the interest is actually credited the following year. For instance, interest for FY25 wasn't credited by 31 March 2025; the government only approved the FY25 interest rate in May 2025. Some subscribers have received interest credit in the past couple of weeks, that is, in FY26.
"Since the interest was credited in FY26, any TDS on the taxable portion will also apply in FY26, and this will be reflected in Form 26AS and the annual information statement (AIS)," said chartered accountant Ashish Karundia. 'If a member, based on the passbook entry, includes the taxable interest in their FY25 income tax return, it could lead to issues in FY26 due to a mismatch.'
Karundia added, 'There is an option in the AIS to submit feedback, indicating that the TDS pertains to interest income from the previous year, and that tax has already been paid. The system will notify the EPFO, but it's unlikely they will revise the TDS return. This will still lead to a mismatch between the ITR and AIS/26AS, and the taxpayer may receive a notice for not paying tax on interest income in FY26.'
Tax experts said you should pay tax on the taxable PF interest on a credit basis, that is, in the year the EPFO credited the interest and deducted TDS. Do not do it on an accrual basis, meaning don't pay tax on the delayed interest credit you received for FY25 while filing your ITR this year. Do it next year, for income earned in FY26. This will help avoid a tax mismatch and unnecessary back-and-forth with the Income Tax Department and EPFO.
You may find it easier to report EPF interest on a credit basis rather than accrual basis. For its part, the EPFO should declare and credit interest rate (and get it approved by the union government) for a particular financial year in that year itself. Doing it in the subsequent financial year and deducting TDS accordingly creates confusion for EPF members.
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