How is the tax on EPF curiosity calculated?

I’ve contributed constantly to the Employees Provident Fund (EPF) for over 10 years till 31 December 2015, once I was working with an organization(say, ABC) . After quitting the agency, I didn’t withdraw my EPF and labored independently and with small firms that weren’t obligated to contribute to EPF for 2 years (2016 and 2017). I joined employer (say, XYZ) on 1 January 2018 and resumed contributing to EPF till 31 December 2019. I transferred my EPF from employer ABC to employer XYZ solely in October 2022 and withdrew my complete EPF stability on 30 April with none tax deducted at supply (TDS) by EPFO.

Is EPF curiosity that accrued in the course of the intervals once I was not contributing to EPF taxable? Specifically, is the curiosity earned between 1 January 2016 and 31 December 2017 and between 1 January 2020 and 30 April taxable within the monetary years by which the curiosity was earned?

—Name withheld on request

The amassed provident fund (PF) stability to the credit score of the worker as on the date of cessation of employment, is exempt from tax, if he/she has rendered steady service for 5 years or extra. Where an worker modifications his job and transfers his PF stability from earlier employer to new employer, the interval of employment with the earlier employer(s) can also be included in computing the interval of steady service.

As you transferred the PF stability along with your earlier employer (ABC) to your account with subsequent employer (XYZ) and thereafter withdrew the amassed PF stability, the interval of 5 years would additionally embrace the interval of service with ABC. Accordingly, the amassed stability to your credit score (until cessation of final contribution) ought to be exempt from tax on the time of withdrawal, to the extent specified.

As held in few judicial precedents, curiosity accrued on the amassed stability, publish the interval of cessation of employment (i.e. the interval when no contribution is made to the EPF) continues to be taxable. Such curiosity shall be taxable within the respective monetary 12 months by which such curiosity is accrued/ credited on the tax charges relevant to you for the respective monetary 12 months. Accordingly, curiosity for the interval from 1 January 2016 to 31 December 2017 and 1 January 2020 to 30 April 2023 (when no contributions have been made to the PF account) ought to be taxable as earnings from different sources.

Since you transferred the PF stability along with your earlier employer (ABC) to your account with subsequent employer (XYZ) and thereafter withdrew the amassed PF stability, the interval of 5 years would additionally embrace the interval of service with ABC.

Accordingly, the accumulations to your credit score throughout your employment with XYZ from 1 January 2018 to 31 December 2019 (together with curiosity accrued) would additionally not be taxable. Hence, not one of the elements shall be taxable in your palms for the interval 1 January 2018 to 31 December 2019.

Interest accrued on the amassed stability, publish the interval of cessation of employment (i.e. the interval when no contribution is made to the PF) is taxable.

Parizad Sirwalla is accomplice and head, international mobility providers, tax, KPMG in India.

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Updated: 09 Jul 2023, 09:22 PM IST

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