An Employees’ Provident Fund (EPF) account is eligible for earning EPF interest rate till the account holder turns 58 years. But, the question is, will the EPF interest earned by the account holder will be 100 per cent income tax exempted in all scenario? According to tax and investment experts, an Employees’ Provident Fund Organisation (EPFO) subscribers’ income via EPF account is taxable if he or she is holding an inoperative account. They said that an EPF account is eligible for tax-free interest accumulations only when it is operational. Once the EPF account becomes inoperative, the EPF account will continue to earn interest but the interest accumulated in the EPF account will be taxable.
Speaking on when an EPF account become inoperative Manikaran Singhal, Founder at goodmoneying.com said, “An EPF account become inoperative if the monthly contribution in the account is not deposited for the period of three years and in that period EPF withdrawal claim is also not received by the EPFO. In short, if EPF contribution is not made in EPF account for three years and during this period if the EPF withdrawal is also not claimed, then the EPF account will continue to earn EPF interest but the EPF account will become inoperative.”
Under what circumstances an EPF account becomes inoperative SEBI registered tax and investment expert Jitendra Solanki said, “An EPF account become inoperative under certain circumstances that are — job loss or switching from job to entrepreneurship, in case the EPFO subscriber passes away or the EPFO subscriber migrates abroad.” He advised EPFO subscribers to withdraw EPF balance rather letting one’s EPF account become inoperative. However, he said that EPF withdrawal is advisable only when the EPF account is more than 5 year old. If an EPFO subscriber withdraws EPF balance before five years of the EPF account opening, then the amount withdrawn will be taxable.