Did you know interest on PF post employment is taxable?
Whether you have resigned, retired or were fired, interest on your provident fund account is taxable in the year of credit after employment. The Bengaluru bench of the ITAT recently upheld this provision while hearing the case of a retired employee. Apparently, not many know of this clause; people don't submit the interest earnings on PF account for taxation and have to face consequences.
The mechanics of the PF account in numbers
Most salaried employees contribute 12% a month to their PF account. The employer matches the amount. The total sum then compounds at a fixed rate as decided by the EPFO every year; currently it is 8.65% per annum. Under Section 80C, contributions of up to Rs. 1.5L to your PF account qualify for tax deduction.
What are the current laws on PF accounts?
An employee's PF account continues to be operational even after employment and keeps earning interest until it is withdrawn, or they take up another job. For retired employees aged over 55, the account turns inoperative three years post-retirement but will keep earning interest. The balance at cessation of service is exempt from taxation subject to conditions, but "any accreditation (post employment) is taxable".
What happened in the Bengaluru man's case?
The recent ITAT hearing was about a man who retired from a Bengaluru-based company in 2002 after 26 years of service. His PF balance then was Rs. 37.93L. In 2011, he withdrew the accumulated sum of Rs. 82L that included Rs. 44.07L interest. However, not knowing the laws, he didn't submit this amount for taxation. When I-T questioned him, he took it the ITAT.
