Plan to retain your Employees’ Provident Fund balance after retiring? You need to read this.
Some people like to keep the money in their Employees’ Provident Fund untouched even after retiring to let it continue to accrue interest. However, certain rules come into play with this, involving taxes, the interest accrual period, and the duration for which the funds can remain unclaimed.
Here’s how it all works.
An individual can continue to be a member of the Employees’ Provident Fund Organisation (EPFO) even after leaving his or her job, and there is no age restriction on membership.
However, for interest to be paid on the funds, there needs to be an employee-employer relationship and active monthly contributions.
Also read: Why withdrawal of money from your PF is fraught with challenges
According to a recent amendment, in case an employee retires after age 55, interest accruals stop after 36 months from the date of last employer contribution to the account if the account holder doesn’t withdraw the EPF corpus.
This means after active contributions cease, the funds continue to earn interest, but this is taxable at the account holder’s stab rate. More on this later.
The account becomes inoperative 36 months from the date of the last employer contribution.
If the amount is unclaimed seven years after becoming inoperative, it will be transferred to the Senior Citizens' Welfare Fund.
If the amount remains unclaimed 25 years after this transfer, the union government has the right to claim the funds.
The interest earned after the last active contribution is taxable as ‘income from other sources’ at the EPFO account holder’s slab rate. However, the interest accrued up to that point remains tax-exempt.
As the EPFO does not deduct tax at source, this tax does not appear in Form 26AS, which contains details of all tax
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