The finance ministry has assured the Employees Provident Fund Organisation , or EPFO, that the entire 9.5% interest on the accumulated corpus of account holders for the current fiscal will not be taxed, ending speculation that the government would start taxing an income that had so far been exempt.
“The finance ministry has told us that it would issue a notification as soon as the EPFO notifies the higher interest rate for the year clarifying that the entire interest on PF (provident fund) for the fiscal would be tax exempt ,” an EPFO official said.
Labour minister Mallikarjun Kharge will go through the minutes of the meeting of the central board of trustees, or CBT, of the EPFO, which decided on the higher interest rate, after which the new interest rate for the year would be notified, the official added.
The finance ministry had issued a notification on August 26, days before the CBT declared a 9.5% interest rate on PF deposits for 2010-11 , stating that up to 8.5% of returns would be tax free. This had led to protests from trade unions which demanded that whatever rate of return the EPFO announced had to be tax exempt.
“Since the notification was put up by the finance ministry before the CBT meeting, it must have been based on the assumption that the 8.5% interest rate that had been maintained in the last five years would continue this year as well,” the official said.
The EPFO declared a one percentage point higher interest for the current year after it discovered Rs 1,731 crore of surplus funds in one of its accounts.
I have few colleagues who have, in the past had a horrible experience working with worse companies, which compelled them to quit and look for other good and employee friendly employers. Such companies do not cooperate when it comes to P.F. withdrawal. Kindly suggest if there is an alternate option, which can enable these victimized employees to directly apply for the P.F. withdrawal from the RPFO ?
It’s really good that the 9.5% interest on the P.F. is non taxable if not withdrawn before 5 years. However, I have a query regarding the same. Imagine a situation wherein an individual has worked for 3 continuous years with an private employer whereby his applicable P.F. has been regularly deposited with the RPFO by his employer. After 3 years, he quit the job and started his own business as a prioprietor of a small firm, where it’s not mandatory for him to go for P.F.. Now, if he wishes to withdraw his P.F., would it be taxable, since he has not completed 5 years ? What if he is waits for 2 more years and then applies for withdrawal (would this withdrawal then be tax free since he is withdrawing after 5 years ??)