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I retired at 58 years of age on January 31, 2016, from a company which has its own exempted PF trust. I have not withdrawn my PF with an understanding that the interest will accrue till I decide to withdraw and also that it is not taxable. Recently, I came across in a Q&A that the interest will accrue only till three years after retirement and that the interest is taxable after retirement. Can you please throw some light, and provide the relevant I-T provisions/laws, etc?
S Muralidharan
As per Section 10(12) of the Income Tax Act, read with Rule 8 of Part A of the Fourth Schedule to the Act, the accumulated balance due and payable to an employee participating in a recognised provident fund is exempt from tax subject to certain conditions. As per Rule 2 of the Schedule, the ‘accumulated balance’ is defined to mean the balance to the credit of the employee on the day he/she ceases to be an employee. Therefore, tax exemption is available only to the extent of accumulated balance standing to the credit of the employee on the day he/she ceases to be an employee. In various judicial precedents, it was pronounced that interest accrued subsequent to retirement cannot be regarded as earned in the capacity of an employee and hence not eligible for exemption.
Therefore, interest credited to the EPF account of a member during the interim — the intervening period from the date of cessation of employment till the date of final withdrawal of PF — is taxable as per the provisions of the Act. As you retired on January 31, 2016, any interest credited to your EPF account post January 31, 2016, will be taxable.
As per Para 72(6) and Para 60(6) of the Employees’ Provident Funds Scheme, 1952, where the employee has not applied for withdrawal of the balance standing to his PF account within a period of 36 months post his/her retirement, the account will be treated as inoperative and subsequently, the PF account will not earn any interest.
I am an NRI and recently relocated to West Asia from the UK. I have been investing ₹10,000 per month in an Axis ULIP through my NRE account since 2007. What will be the tax liabilities if I withdraw the proceeds at the end of my policy term of 15 years or earlier?
Sathiya Jayapal
As per Section 10(10D) of the I-T Act, any amount received under a life insurance policy can be claimed exempt provided the annual premium of the policy (issued on or after April 1, 2003, but on or before March 31, 2012) is less than 20 per cent of the capital sum assured.
Upon maturity or withdrawal after the minimum lock-in period (five years), the maturity amount could be claimed exempt as per the provisions of Section 10(10D), subject to fulfilment of the condition mentioned above.
Therefore, the withdrawal proceeds can be claimed exempt under Section 10(10D) of the Act if the amount of annual premiums paid doesn’t exceed 20 per cent of the capital assured. This exemption is available even if the withdrawal is made earlier than the expiry of the policy term, as contributions have been made for more than five years.
The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in
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