EPFO after retirement: How your PF interest is taxed if you withdraw after 3 years

How is interest income from EPFO taxed post retirement

Interest earned on your provident fund is tax-free only until you retire. Today’s Ask Wallet Wise tells how any interest credited thereafter becomes taxable once contributions stop.

Moneycontrol's Ask Wallet Wise initiative offers expert advice on matters of personal finance and money. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

I retired in February 2025 from a government organisation after nearly 38 years of service. I have not withdrawn my PF corpus from the EPFO and intend to withdraw it only after retaining it for three years (which is the maximum period allowed post-retirement). I understand that the interest earned on the entire corpus, including my and my employer’s contribution, is tax-free till the date of retirement. My query is what will be the tax implication when I withdraw the entire amount after February 2028?

Expert’s Advice: Yes, your understanding of the taxability of interest credited to your provident fund account is correct. As long as you are an employee, the interest credited to your provident fund account is tax-free under Section 10 of the Income Tax Act. You are treated as an employee as long as you are working and contributions to your provident fund account continue.

Once you retire, contributions to your provident fund account stop, and you cease to be an employee under the provident fund rules of the Fourth Schedule of the Income Tax Act. Therefore, the interest credited after retirement on the accumulated balance in your provident fund account becomes taxable in your hands.

For income taxable under the heads “Profits and Gains of Business or Profession” or “Income from Other Sources,” taxpayers have the option to offer income either on an accrual basis or on a receipt basis. Interest on your provident fund post-retirement is taxable under “Income from Other Sources.”

Since you plan to retain your EPF corpus for three years after retirement, it is advisable to offer the annual interest on an accrual basis each year. This will help you avoid a sudden spike in tax liability when you withdraw the corpus if you otherwise choose the receipt basis.

Please note that once you choose a particular method, accrual or receipt, it must be consistently followed year after year for that category of income.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.