Interest paid to ex-employee on withdrawal of RecogPF Trus
This query is : Resolved
26 July 2008
Please refer to the query below and the response of Mr. Sarma wherein he has stated that for the recognised PF Trust no tax is to be deducted to the extent of exempted rate of 8.5(present rate) when the payment of interest is made on withdrwal of PF monney even after the date of leaving the employer.
My ex-employers have however, deducted tax at source @10% from the date of leaving the company to the date of payment of withdrawal amount even though the PF withdrawal took place after 5 years of PF membership.
They seem to have drawn inference where in the case of ONGC Ltd. v Income-tax Officer (TDS), Dehradun ITAT Delhi Bench ‘A’ observed, “Accumulated balance due to employees ] as provided in rule 2(f) of Part A of the Fourth Schedule, to the Income Tax Act 1961, would mean the balance due or claimable by an employee on the day he ceased to be the employee of the employer maintaining the provident fund and, therefore, such balances would imply amounts credited to the accounts of employees during their employment. It was only these balances that were exempt from tax u/s 10(12). The assessee, a recognised provident fund, had made the impugned credits to persons who were no longer employees of ONGC. The cessation was not due to their ill-health, the discontinuation of the employer’s business or for any other cause beyond their control. The amounts credited in the accounts of former employees would not be exempt from tax.”
Even though ITAT ruling was prompted by the fact that employee would leave their accumulated balance with the PF trust to earn tax free interest. While in my case there was no impugned credit but a settlement by way of withdrawal. Further the settlement has happened in the same financial year immediately after the statutory period for withdrawal was over and the formalities of withdrawal were completed.
Kindly advice if I could apply for refund of the TDS and if yes what diclosure needs to be made in the return of income.
Thanks & regards
author : shreyansk
Posted On : 7/3/2007 7:16:54 AM
If a person retires, but does not withdraw his PF and interest paid to him is liable to TDS or not. Please reply at shreyanskavdia@yahoo.com
Expert : Vinod
Posted On : 7/3/2007 11:40:34 PM
You need to specify the nature of PF. Whether it is a Recognized PF, Unrecognized PF or Statutory PF ?
Expert : SUBRAMANIA SARMA G
Posted On : 7/11/2007 12:03:59 AM
In the case of Statutory Provident Fund, interest credited to the account of the employee is exempt. In the case of recognised provident fund, the interest credited to the employee account upto a limit speified [ in the current year 9.5%] is exempt. In the case of un recognised provident fund, interest credited is exempt in the year of credit, but when the balance in the fund is returned the interest on the employees contribution would be taxable under income from other sources, interest on the employers share would be taxed under the head salarie as profit in lieu of salary
My ex-employers have however, deducted tax at source @10% from the date of leaving the company to the date of payment of withdrawal amount even though the PF withdrawal took place after 5 years of PF membership.
They seem to have drawn inference where in the case of ONGC Ltd. v Income-tax Officer (TDS), Dehradun ITAT Delhi Bench ‘A’ observed, “Accumulated balance due to employees ] as provided in rule 2(f) of Part A of the Fourth Schedule, to the Income Tax Act 1961, would mean the balance due or claimable by an employee on the day he ceased to be the employee of the employer maintaining the provident fund and, therefore, such balances would imply amounts credited to the accounts of employees during their employment. It was only these balances that were exempt from tax u/s 10(12). The assessee, a recognised provident fund, had made the impugned credits to persons who were no longer employees of ONGC. The cessation was not due to their ill-health, the discontinuation of the employer’s business or for any other cause beyond their control. The amounts credited in the accounts of former employees would not be exempt from tax.”
Even though ITAT ruling was prompted by the fact that employee would leave their accumulated balance with the PF trust to earn tax free interest. While in my case there was no impugned credit but a settlement by way of withdrawal. Further the settlement has happened in the same financial year immediately after the statutory period for withdrawal was over and the formalities of withdrawal were completed.
Kindly advice if I could apply for refund of the TDS and if yes what diclosure needs to be made in the return of income.
Thanks & regards
author : shreyansk
Posted On : 7/3/2007 7:16:54 AM
If a person retires, but does not withdraw his PF and interest paid to him is liable to TDS or not. Please reply at shreyanskavdia@yahoo.com
Expert : Vinod
Posted On : 7/3/2007 11:40:34 PM
You need to specify the nature of PF. Whether it is a Recognized PF, Unrecognized PF or Statutory PF ?
Expert : SUBRAMANIA SARMA G
Posted On : 7/11/2007 12:03:59 AM
In the case of Statutory Provident Fund, interest credited to the account of the employee is exempt. In the case of recognised provident fund, the interest credited to the employee account upto a limit speified [ in the current year 9.5%] is exempt. In the case of un recognised provident fund, interest credited is exempt in the year of credit, but when the balance in the fund is returned the interest on the employees contribution would be taxable under income from other sources, interest on the employers share would be taxed under the head salarie as profit in lieu of salary
28 July 2008
In the case of recognised PF,the only time limit allowed is the time required by them to encash the securities for settlement. Any deliberate delay on their part to settle and the cosequential interest are not tax free.
28 July 2008
The answer is not related to the query.
Response is solicited on the question of the personal tax of the ex-employee where a recognised PF trust deducts TDS on the interest paid from the date of leaving the services to the date of refunding the PF balance.
Response is solicited on the question of the personal tax of the ex-employee where a recognised PF trust deducts TDS on the interest paid from the date of leaving the services to the date of refunding the PF balance.
31 July 2008
That is exactly what has been ansered. It is taxable.
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