NaviN (Consultant) (120 Points)
23 June 2022I withdrew my EPS money from EPFO. I received Rs.57000 because I worked at that company for almost 7 years. When filing tax returns, will the 57K be exempt income or income from other sources?
There is conflicting info on the internet. I hope you could point me to the relevant tax law that specifies these details.
CA Rashmi Gandhi
(Chartered Accountant)
(86280 Points)
Replied 23 June 2022
NaviN
(Consultant)
(120 Points)
Replied 24 June 2022
@ Rashmi: This is where the confusion is. I'm aware of the EPF rules. I filed my taxes few years ago based on that. The EPS rules seem different: Please see on www.incometaxindia.gov.in, CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME: Section 10(10A)(ii). Half of the pension settlement appears to be exempt income. I received my gratuity payment when I left the company many years ago. So I'm assuming this pension withdrawal qualifies as "commuted pension", which is eligible for 50% exemption. So only 50% of the Rs.57K would be under exempt income, and the remaining 50% would be under "income from other sources". Correct? (background info given below)
Background information:
I worked in a Tata company which kept EPF in the Tata Provident Fund. So the passbook was never visible or accessible on the EPFO. They also started my EPS when I joined the company, but this pension amount was stored with the government (but the passbook for that also is not available on EPFO website). When I left the company, they paid me my gratuity amount (more than 6 years ago). Few years ago, I withdrew my EPF from the Tata Provident Fund. They gave me my account statement for all years, and I filed my taxes in the way you mentioned above. Normally, PF final settlement form submitted is Form 19. But Tata had its own form for this. Anyway, the EPF was withdrawn and my taxes were filed few years back. But then I was told that the EPS amount would still be there. So last financial year I submitted form 10C via the EPFO, for pension withdrawal, and that's the 57K that I received. I still don't have access to the EPS passbook. It's not shown on the EPFO website, so I don't know what percentage of the 57K is interest.
NaviN
(Consultant)
(120 Points)
Replied 24 June 2022
@ Rashmi: Although what you mentioned about EPF being tax exempt is true, there is also the fact that the interest accumulated after leaving the company, is taxable (even if the employee completed 5 years of continuous service). You can see the case of ITA No.858/Bang/2016, CO No.28/Bang/2017, Shri Dilip Ranjrekar. I had to pay the fees of two CA's to clarify whether the entire EPF withdrawn is tax free, and both of them gave me the wrong answer initially, but after I went through the tax laws and cases and after insisting, they confirmed the taxability of the interest. Same way, I need a confirmation about the EPS. Whether it is fully tax exempt or only half of it is, as per Section 10(10A)(ii). This forum is a good place for everyone to keep their knowledge sharp.
NaviN
(Consultant)
(120 Points)
Replied 26 June 2022
Ok, so I tried simplifying the sentences of Chapter III, Section 10(10A)(ii) as:
In computing the total income of a previous year, any income within the following clauses shall be exempt: (10A) any commutation of pension, to the extent that it does not exceed, the commuted value of one-half of such pension.
From the Handbook on the Employees Pension Scheme 1995, page 11, I realized that the 1/3rd value is just the method of calculation of the pension, which Section 10(10A)(ii) speaks of. From ClearTax (https://cleartax.in/s/are-pensions-taxable), it looks like my case of receiving the EPS may qualify for only half the amount being exempt. But this also begs the question of whether my EPS withdrawal is a "commuted pension" or whether the "commuted" term applies only to people who withdraw the pension after the age of 50?
NaviN
(Consultant)
(120 Points)
Replied 16 July 2022
I went through the Manual of Accounting Procedure Part III, Employees Pension Scheme, 1995. It speaks of commuted pension as the amount withdrawn using form 10D. Since I had withdrawn the EPS using form 10C, that only qualifies as a "withdrawal benefit", so I presume the amount withdrawn is fully taxable.
CAclubindia
