Home >Money >Personal Finance >A PF account can become inoperative in the event of no fresh contribution
The VPF offers a higher interest rate because it always matches the Employees Provident Fund (EPF) interest rate, which is mostly a notch higher than the PPF. Photo: iStock
The VPF offers a higher interest rate because it always matches the Employees Provident Fund (EPF) interest rate, which is mostly a notch higher than the PPF. Photo: iStock

A PF account can become inoperative in the event of no fresh contribution

Post the account turning inoperative (the next month of her leaving the employment), the interest accrued to the account becomes taxable on an accrual basis and is to be shown as income from other sources at the time of filing income tax return for the said year

My relative worked for more than five years in a company and then quit the company around four years ago. She had made all the provident fund (PF) deductions and even her universal account number (UAN) is linked. She then joined another company after three months of leaving the previous one, and had regular salary from the new organization. No PF was deducted in the new company, and also nothing was deposited in her PF account by the new company, citing a rule that if basic salary is more than 15,000 then PF is not compulsory. This can be proved by the salary slips and bank statements as well.

My first query is, going by the rules, her PF account would have become dormant by now. How she make it active again and what is your recommendation, should she withdraw or keep the account active?

Second query, she has filed the income tax returns for all these years, which proves she was getting salary. Will the PF interest still become taxable? If yes, then for which all years?

—Vikas Mediratta

The PF account cannot be made active, as there is no fresh contribution towards the PF account, as her new employer is not deducting any amount. And if there is no new contribution to the PF, then the account becomes inoperative but still continues to earn interest.

The PF balance standing at the time of leaving the previous employment is exempt from tax, as she has completed five years of continuous service in that company. However, post the account turning inoperative (the next month of her leaving the employment), the interest accrued to the account becomes taxable on an accrual basis and is to be shown as income from other sources at the time of filing income tax return for the said year.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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