In this article, we update you on new rules for EPF withdrawals during unemployment and on the taxability of an interest-free employer loan.
Withdrawals from EPF Account
As we wrote here, the EPF has now allowed withdrawal of up to 75% of the balance in the EPF account within one month of unemployment. Previously you had to wait for two months of unemployment and then had to withdraw the entire balance in the account. You had to fill up Form 19 for this purpose.
Now you can withdraw up to 75% within 1 month of unemployment and let the remaining balance continue in the EPF account or withdraw it after another month. It will continue to earn interest but the interest will be taxable until you once again take up employment with an employer covered by the EPF scheme.
Partial withdrawals were allowed earlier, but for specific expenditure such as marriage, home construction, children’s education etc were allowed by filling Form 31. All these forms have been condensed into just two composite forms – with and without Aadhaar. The Aadhaar category applies if you have a (Universal Account Number) UAN and it is linked to your Aadhaar and Bank Account numbers. In such as case, you can withdraw from the EPF account online.
Interest-free employer loan is taxable
The (assumed) interest on an interest-free loan received from your employer is taxable. This position has been reaffirmed in a recent ITAT decision. An employee, Neha Saraj had obtained an interest-free loan from her employer, Teej Impex. The Assessing Officer added an interest at the rate of 15% on the loan to her income and held the interest taxable. On appeal, the ITAT upheld the AO’s decision but held that the interest cannot be added in an ad-hoc manner. It has to be added as per the applicable rules which state that the interest on SBI loans on 1st April of the financial year in which the loan was taken by the employee, is to be considered.