When an employee resigns from his job or has been terminated from his post, his employee provident fund (EPF) account continues to be running and earns an interest till he applies for withdrawal of the fund or takes up a new job. However, for an employee who has retired after 55 years, if he does not apply for withdrawal from his account or transfers the balance, the EPF account ceases to become operative and does not earn any interest. The above is according to a notice issued last November.
Tax laws have become stringent in that the interests credited to an employee provident account after the employee concludes to be in employment is taxable to him in the year of credit. The order comes from the Bengaluru workbench of the Income-Tax Appellate Tribunal (ITAT) while hearing the case of a retired employee. This I-T Provision was upheld recently by the Bengaluru bench of the ITAT while arbitrating the matter. This unawareness of imposing taxes on EPF account post-termination, resignation or retirement still exist amongst several employees who maintain their EPF account and earn interest.
Many investment consultants also point out that even in cases handled and heard by the ITAT, the taxpayer says that they though the interest on their EPF account post-retirement was not taxable. This is pertinent to all those who have quit employment, irrespective of the reason, have continued to retain their EPF balance unaware of the tax implication.
Here’s the case: The man retired from a prominent Bengaluru-headquartered software company. His total EPF account was at an amount of Rs 37.93 lakh. He had retired on April 1, 2002. The man went to withdraw the money. Out of Rs 82 lakh from his account, Rs 44.07 lakh was the interest. The assessee viewed the interest to be not liable to tax and exempt under Section 10(12) of I-T Act and hence did not offer this income as tax. However, during assessment processing, the I-T officer levied the tax on this amount, and this litigation was brought to ITAT’s doorsteps.
Section 10(12) mentions the gathered funds to be exempted or to be not liable to tax and payable to an employee till the date of his retirement or end of the business. The term “accumulated balance” as pointed out by the ITAT is described as that portion of income standing as credit which, under regulations of the fund can be claimed by the employee, on the day he ceases to be an employee.
Thus, it was agreed that the interest earned was taxable in the hands of the employee, but also, the ITAT added that the interest amount of Rs. 44.07 lakh should be taxable for only the respective financial years in which this interest arose.
While few have been supporting this and creating awareness, some outranged classes have become to raise their voices by creating the #RollBackEPF trend on Twitter. Amarpal Chadha, partner and India mobility leader at EY India, also tweeted that, “Those who create retirement pools through EPF should know about tax charged on them- it will help to have a clear view on this, for people to plan better.”