I have an EPF corpus of Rs 85 lakh; is it tax efficient to transfer it to NPS tier 1 account after retirement?
I retired on 30 June 2023. I have an EPF corpus of Rs 85 lakh. If I don’t withdraw from it, will the interest earned be subject to tax? Is it better to transfer the EPF corpus to my NPS tier 1 account to earn tax-free interest and growth? Please advise on how to grow my corpus to beat inflation in a tax-efficient manner.
Amit Maheshwari, Partner, AKM Global: According to the provisions of the Income-tax Act, 1961, and aligned rules, withdrawal of EPF corpus on retirement, after a continuous service of at least five years, will be tax-exempt under Section 10(12).
The interest earned on the corpus after retirement will be subject to tax. If the amount is not withdrawn within the specified time of three years, the account becomes inoperative and the EPFO will stop paying interest on the fund. The transfer of the EPF corpus to NPS tier 1 account is tax-exempt under Section 10(12) as the transferred amount is not considered a contribution to the NPS account in the current year.
Early withdrawals of up to 25% from the NPS tier 1 account, for specified purposes are tax-exempt under section 10(12B). The interest earned on the NPS tier 1 account is tax-exempt. At maturity, 60% of the amount due from the pension account is exempt from tax under Section 10(12A), while the remaining 40% is taxable.
However, if the remaining 40% is reinvested in an annuity plan, it becomes non-taxable, though the income earned through the annuity plan is subject to taxation. Hence, the interest earned on the NPS tier 1 account is exempt from tax. You can consider other financial factors like liquidity and financial returns with the help of a financial adviser.
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