Is interest earned on PF balance by a resident who has quit his job in India and moved abroad taxable on accrual basis even if he is below the ageof 58 years?
Except in certain exceptional circumstances beyond his control, in case an employee withdraws the balance from his EPF (Employee Provident Fund) Account before contributions for five years in his provident fund account, the money withdrawn becomes taxable in the hands of the employee. In case the balance in an old provident fund account from previous employer/s is transferred to a new provident fund account mapped with new employer, the contributions made with previous employer are also taken into account while determining the period of five years of contribution.
In case you withdraw the money before contribution in aggregate for five years have been made, the provident fund office deducts tax at 10% if the aggregate balance of the accumulated amount is more than 50,000.
The accumulated balance which becomes taxable in your hands has four components as enumerated by you. The employer’s contribution with interest accrued on such contribution has to be offered under the head “Salaries". The employee’s contribution as well as the interest accrued on such contribution will become taxable under the head “Income from other sources". Since you did not claim the tax benefit for your contribution to provident fund account, you need not offer it for taxation but interest in any case is taxable and to be offered under the head “Income from other Sources".
If you are planning to go abroad only temporarily, it makes sense to retain your EPF account. While an EPF account that hasn’t received any contributions for three years is considered inoperative, the amount deposited in it continues to earn interest till you turn 58. As of today they are not taxable.
But as per budget 2021 they might be.
Accumulated balance up to the date of retirement or end of employment is not taxed, any interest earned on the PF account post resigning, retirement, or end of employment is taxable.