I am 58 and I quit my job on 31 March 2015 but have not withdrawn my Provident Fund (PF) until now. I am planning to withdraw the entire amount. Will I earn interest until I withdraw or will I earn interest till the date on which I became 58 years old? How will the tax be applicable on my contribution and interest earned?
—Pradeep Naik
A PF account becomes an “inoperative account" and does not earn further interest, where an employee retires from service after attaining the age of 55 years or migrates abroad permanently or dies and does not apply for withdrawal within 36 months. Until such time, interest will continue to accrue on the PF balances. However, no interest will accrue once the account becomes inoperative.
You have ceased employment before completing 55 years of age and no contributions have been made to the PF account thereafter. Further, as per the PF withdrawal provision, you are also eligible to apply for PF withdrawal on attaining the age of 55 years. Thus, your PF account will become inoperative only if you do not make an application after 36 months from the date you become eligible to make an application. Therefore, you will earn interest in the PF account till the age of 58 years.
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 you i.e. balance to your credit on the date of cessation of your employment, is tax-exempt if you have rendered continuous service for five years or more.
Assuming that you have contributed to PF for a continuous period of five years before retirement, the amount is exempt from tax. However, any accretions to such balance, thereafter, would be taxable.
A recent ruling of Bangalore ITAT held that interest earned post cessation of employment shall be considered taxable in the hands of the individual. However, considering that this is a fact-specific case, the applicability of the same will need to be evaluated.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com
