Dear reader,
Vanita has asked about the withdrawal of Provident Fund (PF) corpus after retirement, and whether it is mandatory to withdraw immediately or if it can be invested for two or three more years. She also asks about the tax rule on gratuity and if it is allowed to defer gratuity withdrawal by a few years.
The Employee Provident Fund (EPF) Act and Scheme does not impose any restriction on the timeline of keeping EPF membership and remaining invested in the Fund. However, an EPF account becomes inoperative if an employee retires after reaching 55 years of age and does not apply for withdrawal of accumulated balance within 36 months.
In terms of tax, the accumulated balance to the employee’s credit on the date of cessation of employment is exempt from tax if the employee has rendered continuous service with their employer for five years or more. The interest accrued on the accumulated balance post retirement is taxable, regardless of the total contribution period.
Regarding gratuity, it becomes payable to an employee on termination of employment due to superannuation, retirement, or resignation, provided they have rendered continuous service for at least five years. The taxability of gratuity is exempt subject to prescribed conditions and a maximum limit.
It is important to note that the EPF account can be retained until the individual wishes to remain a member, and the tax implications depend on the individual’s contribution period and retirement age.
Historically, the EPF Act and Scheme were introduced in India in 1952 to provide retirement benefits to employees in the organized sector. The Act covers establishments employing 20 or more persons and enables employees to save a portion of their salary in a tax-efficient manner for retirement.
In summary, understanding the rules and tax implications of EPF and gratuity is essential for individuals approaching retirement, and seeking professional advice can provide clarity on their specific situation.
Published: 24 Dec 2023, 10:43 PM IST
Topics You May Be Interested In: Retirement Planning, EPF Act, Taxation, Gratuity Withdrawal.
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