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Hr NewsStatutory Compliance

Quit or axed as employee? Pay tax on EPF interest

Source | https://timesofindia.indiatimes.com 

MUMBAI: Tax laws provide that interest credited to an employee provident fund (EPF) account after an individual ceases to be in employment is taxable in his hands in the year of credit.

In its recent order, the Bengaluru bench of the Income-Tax Appellate Tribunal(ITAT) also upheld this I-T provision while adjudicating the matter of a retired employee.

“Post-employment, whether on account of termination, resignation or retirement, several employees continue to maintain their EPF accounts and earn interest on the same. Unfortunately, they are usually not aware of the tax implications on the interest accretion in the fund after termination of employment,” says Amarpal Chadha, partner and India mobility leader at EY India.

Investment consultants point out that even in the case heard by ITAT, the taxpayer had mistakenly thought that the interest which had accrued to his EPF account post his retirement was not taxable.

This recent ITAT ruling is pertinent not only for retired employees, but also those who have quit employment for various reasons say, to be an entrepreneur or a homemaker, and have continued to retain a balance in their EPF accounts.

According to a notification issued last November, when an employee resigns from his job or his services are terminated, his EPF account continues to be “operative” and earns an interest until he applies for withdrawal of the accumulated balance or takes up another job and transfers the balance. On the other hand, interest accrual norms are different for a retired employee.

If an employee retires after 55 years or age and does not apply for withdrawal from his EPF account or transfer of the balance, then post three years from the date of retirement, his EPF account is treated as “inoperative” and does not earn any interest.

Read On….

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