Interest accrued in Provident Fund account after termination of employment is taxable: ITAT

A recent ruling of Income Tax Appellate Tribunal (ITAT) has held that interest in Provident Fund (PF) earned post cessation of employment shall be considered as taxable in the hands of the individual.

As per Section 10(12) read with Rule 8 of Part A of Fourth Schedule of the Income-tax Act, 1961, the accumulated PF balance due and payable to the assessee is exempt from tax if the assessee has rendered continuous service for a period of five years or more. In case of contributions to PF for a continuous period of at least five years before retirement, the accumulated balance to the extent payable to the assessee at the time of ceasing employment shall be exempt from tax.

However, any accumulations to such balance thereafter would be taxable hands at the applicable income tax slab rates. Taxes on the same may be paid by way of advance tax or self-assessment tax as applicable. According to a recent judicial ruling of ITAT, Bangalore it has been held that interest earned post cessation of employment shall be considered as taxable in the hands of the individual.

The provisions relating to keeping the balance in the past employer’s PF trust and payment of interest will have to be separately evaluated by the assessee based on the said PF trust rules as well as relevant provisions of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.