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 12 months of withdrawal or is there any mechanism to optimize the earnings tax to be paid?
—Name withheld on request
Once an EPF account turns into inoperative, no curiosity is credited farther from that date. Until such time, curiosity will proceed to accrue on the provident fund steadiness.
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 amassed steadiness, inside 36 months from the date it turns into payable. Until 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 change 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 amassed EPF steadiness is exempt from tax. The curiosity accrued on the amassed steadiness, put up 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 12 months through which such curiosity is accrued/ credited on the tax charges relevant to you for the respective monetary 12 months.
If I reward some cash to my spouse and he or she invests it in fastened deposit/debt funds for, say 45 days, with me because the second applicant or as a nominee, will the curiosity earnings thus earned be taxable in my fingers? After maturity, if the principal and curiosity is re-invested, who will bear the tax legal responsibility for the curiosity that accrues additional? Also, how a lot cash can I reward to my spouse, by way of cheque or fund switch to checking account.
—Subir Basu
If a person receives cash as a present, the mixture worth of which throughout a 12 months exceeds ₹50,000, the identical is taxable within the fingers of the recipient. However, the place it considerations a specified relative (which incorporates partner), the recipient is absolutely exempt from taxation.
Any earnings which arises to the partner from property transferred with out ample consideration (whether or not immediately or not directly) by such particular person (being the transferor), is clubbed and taxed within the fingers of the transferor particular person.
Accordingly, curiosity earnings earned from fastened deposit/ debt funds, invested within the title of your spouse, out of the funds gifted by you, shall be clubbed in your earnings and taxable in your fingers.
There is an interpretation (additionally supported by few judicial precedents) that the place the curiosity earnings earned from the fastened deposits/ debt funds is reinvested, earnings generated from such re-invested quantity shall be taxable in your spouse’s fingers and never be clubbed together with your taxable earnings.
Parizad Sirwalla is accomplice and head, international mobility companies, tax, KPMG in India.
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Updated: 18 Jun 2023, 10:10 PM IST
