Taxability of Interest accumulated in EPFO(recognized provident fund) account post retirement

As per recent ITA Pronouncement the interest earned on EPFO balance after the day of retirement is taxable.

Details of ITAT order and tax on interest of EPFO post retirement:

The appellant was an employee of Prominent Software company. The appellant retired from this company on April 1, 2002 after serving the company approximately for a period of 26 years (from 15th May 1976 to 31st March 2002).

In the course of employment, the appellant was a member of Company’s Provident Fund that was an exempted fund under the appropriate provisions of the Act. Contributions out of salary were being made by the appellant as an employee and also by the employer to the Employee Provident Fund (‘EPF’) Account of the employee. The amount of contributions accumulated in the EPF account together with interest as on date of retirement was Rs.37,93,588/-.

The appellant did not immediately withdraw the accumulated balance in EPF account claimable by him on the date of retirement.

The appellant had withdrawn the sum of Rs. 82,00,783/- from EPF account on 11.04.2011. Interest post retirement was Rs.44,07,195. As on the date of retirement the accumulated provident fund balance of contributions plus interest was 37,93,588/-.

The assessee did not withdraw the same immediately, after retirement, but withdrew the accumulated balance of Rs. 82,00,783/- from the EPF account on 11/4/2011, which comprised of Rs. 37,93,588/- the balance on the date of retirement plus interest of Rs. 44,07,195/- on the accumulated balance from 1/4/2002 (the date of assessee’s retirement) upto 11/4/2011; the date of withdrawal.

These details were not disclosed by the assessee in his ITR but were ascertained by the Assessing Officer in the course of assessment proceedings when he required the assessee to explain the credit of Rs. 82,00,783/- to his capital account.

The ITAT upheld that the exemption u/s 10(12) of the Act is limited to the accumulated balance due and payable to an employee upto the date of retirement/end of employment. So the withdrawal to the extent of the accumulated balance (viz., contributions plus interest) upto the retirement of the assessee’s i.e., 1/4/2002 of Rs.37,93,888/- was eligible for exemption u/s 10(12) of the Act .

In this view of the matter, the accumulated interest of Rs.44,07,195/- post retirement of the assessee on 1/4/2002 was not eligible for exemption u/s 10(12) of the Act.

Opinion on taxability of PF interest post retirement-based on the ITAT order:

Considering the fact mentioned above, the decision is pertinent to individuals who have resigned or retired from their employment and have not withdrawn their EPFO account balance fully i.e. have continued to retain their PF accounts without being in employment.

Such individuals need to track the interest in the EPFO account post retirement and consider the same for taxation in the year of accrual, when they follow mercantile system of accounting.

Considering it a fact specific case, adoption of the ITAT order in other set of facts could be evaluated on a case to case basis.


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