EPFs are a source of immense wealth and value for any employee. Irrelative to the continuity of job, they continue to make tier holders wealthy and richer by the day.
Even if the account is functional or not, the account will continue to gift you interest. Yes, you heard it right. As per the government’s decision on inoperative EPFO or Employees’ Provident Fund Organisation, accounts which have been inoperative for the last 3 years will still continue to bag you guilt-free interest.
However, everything is not that rosy. As per the verdict by Bangalore tribunal, the interest earned will be entitled to tax under the laws of Income tax act 1961. the case was filed by an ex-employee of IT company.
“The ruling states that interest on EPF accumulated shall be taxable after the period when a person leaves employment and doesn’t withdraw or get his/her EPF balance transferred with the new employer,” says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.
“In consonance with tax laws, accumulated balance of EPF up to the date of leaving employment shall only be exempt and any interest accrued thereafter shall be taxed,” Sehgal added.
The employee had retired from the IT company in 2002 after he had serviced it for 26 long years. However, after retiring, he didn’t withdraw his EPF balance which had accumulated over the years. As a matter of fact, he was entitled to withdraw the amount.
From 2002 to 2011, there was no withdrawal from EPF account. Finally, he withdrew a sum of Rs 82 lakh from the EPF account in 2011 but didn’t pay any tax on interest credited to his account till 2011.
The verdict of the tax tribunal supported the assessing officer’s contention. The verdict made it clear that the interest credited on the withdrawn maturity amount will be taxable in the hands of the assessee if the withdrawal is made after retirement.
