You will be taxed on interest earned on savings bank account
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I worked in a company for 12 years, but three years ago it was taken over by a new one. My provident fund (PF) account of the former company ceased to exist and we were made to withdraw the money. Now we have a new PF account. I’m taking a break from work now and want to withdraw the money. Will I be taxed?
PF withdrawal is taxable if the same is withdrawn without rendering continuous services for five years or more. However, if the accumulated PF balance maintained with the old employer is transferred to the PF account of the current employer, then the period of previous employment is also included as part of continuous service and accordingly period of five years is calculated.
Since you had withdrawn the accumulated PF balance maintained with the former employer and had not transferred it to the PF account maintained with the new company, the past services will not be included while computing the period of five years with the current employer.
As the total period of services with the new employer is less than five years (i.e., three years), you may be taxed on the PF balance withdrawn in the financial year (FY) of withdrawal.
If the payment is from a recognised Employees’ Provident Fund Scheme (EPFS), trustee of the EPFS will deduct tax at source at 10% if the taxable PF amount is more than Rs.30,000 and if you had given your Permanent Account Number (PAN). If PAN is not available, then tax would be deducted at the maximum marginal rate.
If you keep the funds with the current employer and subsequently, whenever you take up a new job, you can transfer the said accumulated PF balance to the PF account of the new employer. In such a case, at the time of withdrawal of PF maintained with the new employer, while computing the period of continuous service, the period of service rendered with ex-employer will also be included. So, if the cumulative years of service with ex-employer and new employer are more than five years, there won’t be a tax implication upon withdrawal. Also, if you keep your money in the PF account as aforesaid without any further contributions for three years, you will continue to earn interest. It will thereafter be classified as a dormant account and no interest will be paid from that point.
The withdrawal of the PF will be as per the aforesaid provisions, which require you to have a non-employment period of two months after leaving your job.
Is the interest earned on my savings account taxable?
The interest earned on a savings bank account maintained with a specified bank, or co-operative society, or the post office, is taxable in the hands of the individual as “income from other sources”. One can claim deduction from total income subject to maximum cap of Rs.10,000 per FY under section 80TTA of the income-tax Act.
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