Employees Provident Fund (EPF) is one of the most important parts of any employees remuneration as it is his savings that he earned during the span of career life. Not only does EPF helps in savings but it also helps in getting relief from tax too. But now it seems that the employees can no more enjoy the benefit of tax savings if they are retired or have resigned from their office of profit.
Retired or resigned employees will have taxable EPF accounts
Recently, it was reported in one of the English dailies that the employees who have resigned or have got retired will have to pay tax on the interest of EPF or Employee Provident Fund. There will be no tax relief on the EPF interest for the resigned and retired employees as the interest credited to their EPF account will be taxable in the same year of its credit.
The Bengaluru bench of the Income-Tax Appellate Tribunal (ITAT) has issued this notification while hearing the case of one of the retired employees. The notification reads that the EPF (Provident Fund) account of an employee remains operational also after his service is over. His EPF account also keeps earning the interest on it until he withdraws it. The EPF account of any employee who retires at the age of 55 and doesn’t apply for its withdrawal automatically becomes inoperative after three years of his retirement and will not even any interest in it.
Till date, it is seen that the employees continue to earn interest on their Provident Fund account after their retirement, resignation or termination. But now, the retired or resigned employees will not be able to practice it.
Why is EPF account made taxable for retired & resigned employees
A case in the Bengaluru bench of the Income-Tax Appellate Tribunal (ITAT) had come where a man retired from a Bengaluru-based software company after completing 26 years of his service, in the year 2002 with the balance of Rs 37.93 lakh in his EPF account. In the year 2011, the man withdrew Rs 82 lakhs from his EPF account that had to grow with the interest of Rs 44.07 lakh over the years after his retirement. He then did not pay tax on his interest amount and assumed it to be exempted under Section 10 (12) of the I-T Act. When the financial assessment was carried out in the year 2011-12, he was slapped with a tax on the interest incurred. Now when the case was presented in front of the ITAT it agreed on the interest amount as taxable after retirement for all Provident Fund accounts.
The interest rate for last year’s fiscal year 2017-18 was 8.56 percent and those who haven’t paid will be charged in the current financial year 2017-18. The interest rate for this year is soon to be announced.