A person holds a Provident Fund (EPF) account for 15 years and moves out of the job after that. From when will the tax be deducted on the interest and how much? In case the interest paid is taxable, will tax be deducted at source (TDS)? If there’s no TDS, should the person mention that as income when filing returns in the year of withdrawal or every year in which interest is paid?
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 due and payable to the employee or the balance on the date of cessation of his employment, is tax-exempt if he has rendered continuous service for five years or more. However, based on judicial precedents, any accretions to such PF balance, thereafter (from the date of ceasing employment till the date of withdrawal), will be taxable. Accordingly, in your case the interest earned post completion of your employment will be taxable in your hands.
Whether TDS happens or not depends on the position adopted by the payor—private trust maintained by the employer or the regional provident fund commissioner—and the quantum of interest, among others. You may be required to pay advance tax, depending on factors such as the quantum of the overall income (including this one), tax liability, TDS withheld and your age.
The taxable interest on the employer’s contribution post completion of your employment should be offered to tax year-on-year. The taxable interest on the employee’s contribution may be offered to tax based on the method of accounting adopted—cash or mercantile. The disclosures in the tax returns would need to be made accordingly.