I have been serving in a company which had recognised Provident Fund Scheme. I have not withdrawn the amount after retirement, while interest is being credited to my account.
Six years after my retirement, I am now drawing both the principal amount and interest. What is the correct treatment to be given to interest income. I believe that the entire interest from recognised provident fund is exempt so that it is not liable to tax in the year of drawing.
Sec. 10(11) provides for exemption for interest from provident fund to which Provident Funds Act applies or is notified by the Central Government. Interest credited each year to the deposit holder's account is, therefore, exempt. Sec. 10(12) provides for exemption from any payment, inter alia, from a recognised provident fund, subject only to limitation placed by Rule 8 of Part A of Schedule IV for those who have rendered service for less than five years, subject to exception for ill-health or other reasons beyond control of the employee. It, therefore, follows that final drawings will also be exempt. As long as the amount continues in a recognised provident fund, the benefit of Sec. 10(11) and (12) cannot be denied. In Subhash Bansal v ITO (2008) 170 Taxman 601 (P&H) , the High Court held that the retirement would make no difference and that the interest from any eligible provident fund will be exempt as long as the amount continues in such fund.
The reader's inference is, therefore, correct.
