@revealedtruths While this is factually
(nearly\)* correct answer and there may be two buckets / accounts within your EPF account moving forward,
how they operationalize it would be very interesting and OP @svs1957, I would like to know how your employer / tax consultant / RPFO treated your taxable bucket. Please do inform us on this forum.
My concerns stem from the fact that we don't know for sure how much interest we are getting on the EPF account until
about 6 to 10 months into the next FY, by when the deadline for ITR filing is already over. (This is because Labour & Finance ministries come to an agreement only a few quarters after the end of the FY and official notification takes a few days thereafter.) This is so unlike any other interest bearing instruments or bank accounts, where the interest rates are known and interests are easy to compute and/or interest certificates are issued.
Would EPFO deduct TDS on the "taxed bucket" or does the employee have to separately pay taxes? Would there be an interest certificate issued? How should advance taxes be computed? Would taxes be payable on withdrawal vs on accrual?
I speculate that tax consultants may suggest you to go by the previous year's interest rate as a baseline for this year's interest computation, and then do a true-up during the next year's IT return. If this is what we are resigned to do, then managing taxes for this "taxed" bucket in EPF account is going to be a nightmare.
\* - The reason I put "nearly" as a caveat is because in the last para it seems to imply that 2.5L is now going to be tax-free.
This 2.5L and whatever interest it earns throughout it's lifetime will be tax-free.
This is incorrect. Only interest on it is tax-free. How much of the principal EE contri of 4.2L is tax-deductible depends upon other deductions that employee avails. In any case, EE contribution can be tax-deductible only up to a max of 1.5L limit of 80C.