Will I be taxed if I don't withdraw EPF amount after retirement?

I have accumulated a large amount in my EPF account. I will be retiring in a few months but do not want to withdraw this sum. Can one keep the sum in the EPF after retirement? Will there be some tax implication if one does that?

Amit Maheshwari, Partner, Ashok Maheshwary and Associates replies: Yes, you can keep the money in the EPF account after retirement, but the account becomes inoperative—no interest is paid on the accumulated sum—after the person turns 58, or three years after he retires. There is no tax on the EPF balance till the date of retirement. However, according to a recent ruling, any interest credited to the EPF account after retirement is taxable under the head ‘income from other sources’. So, if you keep the money in the EPF after retirement, you will need to disclose the interest in your income tax return and pay tax accordingly.

What is the tax liability on the gratuity received at retirement?


Ashok Shah, Partner, N.A. Shah Associates replies: The Income Tax Act allows some exemptions on gratuity received on retirement or on termination of employment. The gratuity received by government servants is fully exempt from tax. If gratuity is received from a private organisation, the lower of the following amount is exempt: 15 days salary for each completed year of service, or Rs 20 lakh, where employer is covered by the Payment of Gratuity Act, and Rs 10 lakh if the employer is not covered by the Act. Salary includes basic and dearness allowance. Where Payment of Gratuity Act is applicable, the salary is computed on the basis of the last salary drawn, and where the Act is not applicable, it is computed on the basis of average salary for the last 10 months in service.