I was an employee of a private sector bank and had contributed to the Employees’ Provident Fund (EPF) account. My EPF contribution was for more than 5 years in the same organization. Recently, I resigned and joined an organization that offers NPS only, so I am unable to transfer the EPF balance. What should I do now? Do you advise a transfer of the balance in my EPF account to my NPS account? Can I withdraw this balance?
You can transfer your balance in EPF account to your NPS account which does not have any tax implication at the time of transfer. However, if you don’t wish to transfer your PF funds to NPS, you can either withdraw the PF balance as your present employer does not have an EPF scheme or keep the balance there and transfer it in future to your EPF account in case you take up a job with a company offering EPF. As you have contributed to your PF for more than 5 years; your PF withdrawal would not be liable to income tax. I would not advise you to transfer the money to an NPS account as it offers only 60 per cent of the corpus as exempt and mandates you to buy an annuity for 40 per cent of the balance at the time of withdrawal. Please note that interest earned on your EPF account during the period when no contributions are being made to your EPF account, will be taxable in your hand and you should disclose the interest income in your ITR.
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As per a recent Mumbai High Court Order, despite attempting to file a revised ITR 2 using the online utility to claim a Rs. 12,500 rebate, under the old tax regime, I was unable to get the rebate under Section 87A in the final Schedule of the ITR-2. My income comprised of interest and dividend of Rs. 4,62,220 and short-term capital gains on listed shares of Rs. 9,610. I also had long-term capital gains on equity mutual fund schemes Rs. 75,810 which is exempt and thus not relevant. Since my taxable income is lower than Rs. 5 lakhs why I am not allowed the rebate under Section 87A? Can you please help?
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Under the old tax regime, the rebate under Section 87A up to Rs. 12,500 is available if your total income after all the deductions did not exceed five lakh rupees during the financial year 2023-2024 year. As per Section 112A, the rebate under Section 87A is not available against the tax liability on long-term capital gains on listed shares and units of equity-oriented schemes. Long-term capital gains on listed shares and equity-oriented schemes of mutual funds up to one lakhs were taxed at zero rate of tax during that year but were required to be included in the total income for determining the threshold eligibility for rebate under section 87A of five lakh rupees.
After 5th July the income tax department changed the ITR utility disallowing rebates under Section 87A for those ITRs which were filed after 5th July in respect of income which were taxed at a flat rate of tax. In a written petition, the Bombay High Court has directed the tax department to restore the rebate under Section 87A.
Though your long-term capital gains of Rs. 75,810 will effectively be tax-free in your hands but are required to be included in the total income. Since the total income including the tax-free long-term capital gains exceeds the threshold of five lakh rupees, you are not eligible for rebate under Section 87A in spite of the Bombay High Court interim decision.
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Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on X.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
