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Pay Tax on EPF account until you apply for its withdrawal

A new notification came, which reads that if an employee resigns from his job, his EPF account will be “operative”, however, will earn an interest until he applies for withdrawal.

Tax laws provide Tax laws provide that interest credited to an employee provident fund (EPF) account after an individual ceases to be in employment is taxable in his hands in the year of credit.

Also, the Income Tax Appellate Tribunal (ITAT) upheld the matter of a retired employee where the employees who retires after 55 years of age and then post three years from the date of retirement, his EPF account is treated as “inoperative” and does not earn any interest.

Post – employment, whether on account of termination, resignation or retirement, several employees continue to maintain their EPF accounts and earn interest on the same. Unfortunately, they are usually not aware of the tax implications on the interest accretion in the fund after termination of employment
says Amarpal Chaddha, partner and India mobility leader at EY India.

Hence, this notification is applicable for both retired employee and for those who have quit employment for various reasons.

The applicable interest for the financial year 2016 – 17 was 8.65%. For the current year the interest rate will be announced shortly.

EPF is the most important investments made by a salaried individual during his or her term of employment. This scheme is managed by the Employees’ Provident Fund Organization (EPFO) which is a statutory body formed under Employees Provident Fund and Miscellaneous Provision Act of 1952. The EPF account not only comprises of the contribution made by the employee but as a statutory rule, every organisation which employees more than 20 employees under its payroll are required to register with EPFO.  This means both the employee as well as the employer makes a contribution to the EPF account. The EPF not only serves the purpose of a retirement scheme but also works as a saving scheme that can be used at the emergency.

To know more about EPF Withdrawal Rules visit https://rupeenomics.com/epf-withdrawal-rules.

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