Are you planning to leave your existing job ? You may be penalized by Income tax as it is ruled by authority that “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”. There is a greater misconception related to Income tax on EPF interest as taxpayer had mistakenly thought that the interest which had accrued to his EPF account post his retirement was not taxable.
It is seen that Post-employment, whether on account of termination, resignation or retirement, several employees continue to maintain their EPF accounts and earn interest on the same.
Rules for EPF withdrawal :
For Retired Employees : If an employee retires after 55 years of age and does not apply for withdrawal from his EPF account or transfer of the balance, then post three years from the date of retirement, his EPF account is treated as “inoperative” and does not earn any interest.
For employees who resigned : when an employee resigns from his job or his services are terminated, his EPF account continues to be “operative” and earns an interest until he applies for withdrawal of the accumulated balance or takes up another job and transfers the balance.
SO, Under the tax laws, the accumulated balance, as it stands on the date of cessation of employment, is considered as an exempt income (subject to satisfaction of certain conditions). Any accreditation in the EPF account after cessation of employment would be taxable income.