How is withdrawal of PF contribution taxed?
I’m a 62-year-old retiree and my worker’s provident fund (EPF) contributions from 5 totally different employers over time have been linked to 1 common account quantity (UAN) since January 2010. Will the accrued credit score in my EPF account appeal to earnings tax on withdrawal?
—Name withheld on request
As per the related provisions of the Income-tax Act, withdrawal of accrued steadiness within the EPF account is exempt from tax offered the worker has rendered ‘continuous service’ along with his employer for interval of 5 years or extra. Further, if the worker modifications his job and transfers the steadiness in his PF account from the erstwhile employer to the PF account of the brand new employer, then the interval of employment with the earlier employers can also be included in computing the interval of ‘continuous service’.
We perceive that you’ve been contributing to PF since January 2010, beneath the identical UAN (Universal Account Number). Further, it’s assumed that you’ve additionally transferred the steadiness in your PF accounts with the erstwhile employers (although beneath the identical UAN) to the brand new employer, as per the prescribed course of (i.e., all PF accumulation at your credit score stand in a single PF account on the time of superannuation).
In such case, because the complete service interval exceeds 5 years, the withdrawal of accrued steadiness as much as the date of cessation of final contribution, shall be exempt from tax in your palms. Any curiosity accrued on such accrued steadiness submit cessation of employment, shall nevertheless be taxable in your palms.
I purchased two insurance policies of LIC Jeevan Saral in 2009 and 2012. Each had sum assured of ₹10 lakh, with a month-to-month premium of ₹4,083 and a maturity interval of 20 years. I surrendered these insurance policies in July after paying premium for 14 years and 11 years, respectively, and obtained maturity quantity of ₹9.44 lakh and ₹8.63 lakh. Are these taxable? If not, do I would like to point out them in subsequent yr’s earnings tax return?
—Kaushik Ok Ghosh
As per the provisions of Income-tax Act, any sum obtained beneath a life insurance coverage coverage (together with quantity allotted by the use of bonus) issued between 1 April 2003 and 31 March 2012 is exempt from tax offered the annual premium paid is lower than 20% of the capital sum assured.
If the coverage is issued on or after 1 April 2012, then the maturity proceeds could be exempt from tax, offered the annual premium paid is lower than 10% of the capital sum assured.
In the moment case, because the annual premium paid for each the insurance policies is lower than 20% and 10%, respectively, of the capital sum assured , the quantity obtained by you on give up of the coverage shall be exempt from tax.
Such receipt ought to be reported as an exempt earnings by deciding on acceptable dropdown choice in Schedule EI / ‘exempt income’ within the earnings tax return type.
Parizad Sirwalla is associate and head, international mobility companies, tax, KPMG in India.
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Updated: 08 Oct 2023, 10:50 PM IST
