When does your PF cease accruing curiosity?

How lengthy will the worker provident fund (EPF) account proceed to accrue curiosity after contribution to the account has stopped? is it taxed on the slab fee for the monetary yr of withdrawal or is there any mechanism to optimize the revenue tax to be paid?

—Title withheld on request

As soon as an EPF account turns into inoperative, no curiosity is credited farther from that date. Till such time, curiosity will proceed to accrue on the provident fund stability.

As per the EPF Scheme, an EPF account turns into an inoperative and doesn’t earn additional curiosity the place an worker retires from service after attaining of 55 years of age or migrates overseas completely or dies and doesn’t apply for withdrawal of his gathered stability, inside 36 months from the date it turns into payable. Till such time, curiosity will proceed to accrue on the PF balances. Thus, in case the cessation of employment is earlier than attaining 55 years of age, then an account shall develop into inoperative solely after the age of 58 years .

If an worker has rendered steady service for a interval of 5 years or extra, the gathered EPF stability is exempt from tax. The curiosity accrued on the gathered stability, publish the interval of cessation of employment (i.e. the interval when no contribution is made to the EPF), is taxable, regardless of the contribution interval to EPF. Such curiosity shall be taxable within the respective monetary yr wherein such curiosity is accrued/ credited on the tax charges relevant to you for the respective monetary yr.

If I present some cash to my spouse and she or he invests it in mounted deposit/debt funds for, say 45 days, with me because the second applicant or as a nominee, will the curiosity revenue thus earned be taxable in my arms? After maturity, if the principal and curiosity is re-invested, who will bear the tax legal responsibility for the curiosity that accrues additional? Additionally, how a lot cash can I present to my spouse, by way of cheque or fund switch to checking account.

—Subir Basu

If a person receives cash as a present, the combination worth of which throughout a yr exceeds 50,000, the identical is taxable within the arms of the recipient. Nonetheless, the place it issues a specified relative (which incorporates partner), the recipient is absolutely exempt from taxation.

Any revenue which arises to the partner from belongings transferred with out enough consideration (whether or not straight or not directly) by such particular person (being the transferor), is clubbed and taxed within the arms of the transferor particular person.

Accordingly, curiosity revenue earned from mounted deposit/ debt funds, invested within the title of your spouse, out of the funds gifted by you, shall be clubbed in your revenue and taxable in your arms.

There’s an interpretation (additionally supported by few judicial precedents) that the place the curiosity revenue earned from the mounted deposits/ debt funds is reinvested, revenue generated from such re-invested quantity shall be taxable in your spouse’s arms and never be clubbed together with your taxable revenue.

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

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Up to date: 18 Jun 2023, 10:10 PM IST


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