Have you quit your job or retired from it and have not applied for the withdrawal of the accumulated balance in your EPF (employee provident fund) account in the hope that the fund will continue to earn tax-free interest, then think again. For, as per the latest tax rules, the interest that has accrued in your EPF account post employment is taxable.
Chetan Chandak, Head of Tax Research, H&R Block India, says, “Section 10(12) of the Income Tax Act exempts only 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 to the Income Tax Act. This exemption is available in the below circumstances:
(i) If he has rendered continuous service of minimum 5 years with his employer, orRead more ↓
(ii) His service has been terminated before 5 years, by reason of his ill-health, or by the contraction or discontinuance of the employer’s business or other reasons beyond the control of the employee, or
(iii) In case, on the cessation of his employment, the employee obtains job with a different employer, but even in this case exemption is available only to the extent the accumulated balance due and becoming payable to him, that too if it is transferred to his EPF account maintained with new employer.
(iv) If the entire balance in his EPF account is transferred to the notified pension scheme (NPS).
Further as per fourth schedule mentioned above, ‘the accumulated balance due to an employee’ means the balance standing to the credit of the employee, or such portion thereof which the account holder can lawfully claim under the EPF rules, on the day he ceases to be an employee of such company.
So, “as we can observe from the above provisions, only the accumulated balance due to an employee on the last day of his employment is exempt and any amount of interest which accrues to that account subsequent to the cessation of the employment is not covered under the exemption. Therefore, the interest accruing to the EPF account post one quits the job either on retirement or otherwise (except in case of termination of employment for reasons beyond the control of the employee) will not be covered by the Section 10 exemption and should be taxable,” says Chandak.
Further, the taxability of interest will also arise in the cases given below:
1. Where an employee quits his old job with employer A and joins Employer B where he is not covered by EPF rules. He works here for some time before he transfers his old accumulated balance to an EPF account maintained with his new Employer C. In this case the interest earned from the date of quitting the job with Employer A till the balance is transferred to the EPF account maintained with Employer C will be taxable.
2. In another case “where he has completed 5 years of service in the old job with Employer A and withdraws the old balance without transferring the old EPF balance to the EPF account maintained with the new employer B. In this case, only the interest accruing post he quits old job with Employer A will be taxable,” informs Chandak.
Thus, after quitting your job or post retirement, think twice before leaving your EPF balance as it is!
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