How is interest accrued on PF taxed?

The cumulative sum due and becoming payable to an employee participating in a recognised provident fund is exempt in the hands of the employee to the extent permitted in rule 8 of Part A of the fourth schedule under the Income-tax (I-T) Act 1961.


Furthermore, accumulated balance due and becoming payable from a recognised provident fund shall be excluded from the computation of total income of an employee—

(i) if he has rendered continuous service with his employer for a period of five years or more, or 

(ii) if the service was ended due to the employee's illness, the employer's business contracting or ceasing operations, or another circumstance beyond the employee's control, or



(iii) if the employee acquires employment with any other employer after the termination of employment, to the extent that the accrued sum due and becoming payable is transferred to his individual account in any recognised provident fund maintained by the new employer; or

(iv) if the whole sum to the employee's credit is transferred to his NPS (National Pension System) account It should be emphasised that the term "accumulated balance owing to an employee" refers to the amount (including accretions) on an employee's credit at the time of his termination. In this scenario, the exemption applies solely to the accumulated sum (as of the end day of your prior employment) that is transferred to the new employer's recognised provident fund account.



Any interest income earned after your former job ended until it was transferred to your new employer's provident fund account would be deemed taxable income. As a result, interest money earned during the two-year hiatus in work will be taxable in your hands.

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