PF account becomes inoperative if an employee retires after 55 years of age2 min read . Updated: 23 Aug 2020, 10:29 PM IST
As per the Indian PF law, a PF account becomes inoperative and does not earn further interest if an employee retires from service after 55 years or migrates abroad permanently or dies and does not apply for withdrawal of the balance within 36 months
I want to understand the income tax treatment on the interest part of the Employees’ Provident Fund (EPF). I started working in May 1984 and worked with four different companies till 31 December 2014. I was self-employed after that and stopped contributing to the provident fund (PF) in January 2015. My account became dormant after three years, in June 2018, and interest stopped getting accrued after that. I withdrew my PF in January 2020.
What will be the tax treatment for interest accrued till January 2015 from 1984 and in the period between January 2015 and 2020? Is interest payable until PF is withdrawn by an employee even after three years of no contribution?
From a tax perspective, as per Section 10(12) read with Rule 8 of Part A of Fourth Schedule of the Income-tax Act, 1961, the accumulated PF balance due and payable to the employee—balance to his credit on the date of cessation of his employment—is exempt from tax if he has rendered continuous service for a period of five years or more.
Where there are multiple employers and the PF balances are transferred to the PF account with the most recent employer, the cumulative period of employment is seen to evaluate whether the employee has rendered continuous service for a period of five years or more.
In your case, the cumulative period of employment is more than five years (assuming you transferred your PF balance every time you changed jobs), the accumulated balance up to 31 December 2014would not be liable to tax. However, any accretions to such balance starting 1 January 2015 till the date of withdrawal will be taxable in your hands.
As per the Indian PF law, a PF account becomes inoperative and does not earn further interest if an employee retires from service after 55 years or migrates abroad permanently or dies and does not apply for withdrawal of the balance within 36 months. Until such time, interest will continue to accrue on PF, but no interest will accrue once the account becomes inoperative.
It is assumed that you are an Indian citizen and ceased to be in a job before completing 55 years of age. In that case, if you made no contributions to PF thereafter, you should be able to earn interest in the PF account till the age of 58 years or until the date of withdrawal (January 2020), whichever is earlier.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at email@example.com