Hi,
If an employee has resigned from the company, then how would the interest on EPF be taxable? I've read that it is exempt upto retirement. But does it become taxable after retirement? If yes, then is it to be offered every year on accrual basis or can be offered in year when EPF is withdrawn (i.e. on receipt basis)?
Another Variation in the question;
If the employee was in employment for half of the Financial year, then would the taxability logic/premise change in any way?
Thanks in advance.
There is no tax on the EPF balance till the date of retirement. However, according to a recent ruling, any interest credited to the EPF account after retirement is taxable under the head ‘income from other sources’. So, if you keep the money in the EPF after retirement.
You will need to disclose the interest in your income tax return and pay tax accordingly.
Yes for that particular FY.
Thanks for response. If the employee retired on 30th September of the financial year, then tax on interest on employers and employees contributions will be effective from 1st October onwards right ? Or from the beginning of the financial year?
As the interest is compounded monthly, but credited annually. the change should be effective from next FY. However as per new rules of EPFO, if the employees account become inoperative, he/she will not continue to receive any interest on the funds accumulated in the EPF accounts in the situations as mentioned below:
Thanks for response.
But in one of my relatives account, they retired at age of 61 in FY 2020-21 and are still receiving interest in EPF. This seems to go against the 1st bullet point
"In case the employee retires from his service period after the age of 55 years."
Please clarify.
There is nothing contradictory.
The condition expressly states "" ......... ..... retirement at (any age) after the age of 55 years""
It doesn't state anything for the employees working even after the age.
It will be contradictory if the interest is credited for current FY.
Thanks for being so generous and responding patiently. I will make update here, if my relative receives interest in FY 2021-22 (for sake of helping others who come here with similar queries).
Going by the above answers, I can come to conclusion that he should not offer tax on interest earned on EPF during FY 2020-21 even if he retired on April 2020 right?
Pls correct if you are of alternate or different view. Thanks.
I reaffirm that when the employee retires in April 2020, though as per EPFO rules, he may get interest credited for the period ending March 2021; but he will not get any interest from the FY 2021-22.
For taxation of the interest earned in FY 2020-21, IT rules are applicable. As per that, for AY 2021-22, any interest accrued from the month MAY 2020 till march 2021, is taxable u/h IFOS.
In protest against ADMIN for its discriminatory behavior among different members, I leave the portal permanently. Good Bye.
CAclubindia
