BackHow is withdrawal of PF contribution taxed?
Wthdrawal of accumulated balance in the EPF account is exempt from tax provided the employee has rendered ‘continuous service’ with his employer for period of five years or more.
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I am a 62-year-old retiree and my employee’s provident fund (EPF) contributions from five different employers over the years have been linked to one universal account number (UAN) since January 2010. Will the accumulated credit in my EPF account attract income tax on withdrawal?
—Name withheld on request
As per the relevant provisions of the Income-tax Act, withdrawal of accumulated balance in the EPF account is exempt from tax provided the employee has rendered ‘continuous service’ with his employer for period of five years or more. Further, if the employee changes his job and transfers the balance in his PF account from the erstwhile employer to the PF account of the new employer, then the period of employment with the previous employers is also included in computing the period of ‘continuous service’.
We understand that you have been contributing to PF since January 2010, under the same UAN (Universal Account Number). Further, it is assumed that you have also transferred the balance in your PF accounts with the erstwhile employers (though under the same UAN) to the new employer, as per the prescribed process (i.e., all PF accumulation at your credit stand in one PF account at the time of superannuation).
In such case, since the total service period exceeds 5 years, the withdrawal of accumulated balance up to the date of cessation of last contribution, shall be exempt from tax in your hands. Any interest accrued on such accumulated balance post cessation of employment, shall however be taxable in your hands.
I bought two policies of LIC Jeevan Saral in 2009 and 2012. Each had sum assured of ₹10 lakh, with a monthly premium of ₹4,083 and a maturity period of 20 years. I surrendered these policies in July after paying premium for 14 years and 11 years, respectively, and received maturity amount of ₹9.44 lakh and ₹8.63 lakh. Are these taxable? If not, do I need to show them in next year’s income tax return?
—Kaushik K Ghosh
As per the provisions of Income-tax Act, any sum received under a life insurance policy (including amount allocated by way of bonus) issued between 1 April 2003 and 31 March 2012 is exempt from tax provided the annual premium paid is less than 20% of the capital sum assured.
If the policy is issued on or after 1 April 2012, then the maturity proceeds would be exempt from tax, provided the annual premium paid is less than 10% of the capital sum assured.
In the instant case, as the annual premium paid for both the policies is less than 20% and 10%, respectively, of the capital sum assured , the amount received by you on surrender of the policy shall be exempt from tax.
Such receipt should be reported as an exempt income by selecting appropriate dropdown option in Schedule EI / ‘exempt income’ in the income tax return form.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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