Interest on CPF retained after retiring liable to tax

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Updated: June 05, 2019 8:39 AM

As per some recent rulings, the interest earned subsequent to retirement is liable for tax in your hands at applicable slab rates.

Contributory Provident Fund, interest CPF, Public Provident Fund, PPF, NPS, Employees

I retired from a PSU on August 31, 2016. Till date I have not taken my Contributory Provident Fund (CPF). Up to what time can I retain my CPF and do I have to pay tax earned on my CPF?
– NK Grover

You can retain or accumulate the CPF (Contributory Provident Fund) amount up to 36 months from the date of retirement. After 36 months, the account will be classified as inoperative and will stop to fetch any interest. Hence, it is advisable to withdraw the amount within three years. Further, as per some recent rulings, the interest earned subsequent to retirement is liable for tax in your hands at applicable slab rates.

I received Rs 15 lakh as share from the sale proceed of my ancestral property. I have invested that in SBI tax saving mutual fund scheme to avoid deduction of income tax. Will the capital sum be subject to TDS at the time of withdrawal?
—A K Raj

On sale of ancestral property, long term capital gains (LTCG) will arise which will be calculated by deducting proportionate cost of acquisition (which shall be proportionate cost to the previous owner, after indexation to account for inflation) of this property from your share. SBI tax saving mutual fund is not an eligible investment for claiming the exemption on long-term capital gains accrued to you.

However, you will be eligible to claim deduction under Section 80C for this investment up to Rs 1.5 lakh from your gross total income. If you have sold this property in FY19 or thereafter, you still have the window to buy a residential property for the amount of capital gains within two years or in the notified bonds of companies like Rural Electrification Corporation or National Highways Authority of India within six months of sale of the old property and the amount of the gain shall be exempt to the extent of the investment made.

As per interim budget no TDS will be deducted on FD interest up to Rs 40,000 for individuals. We are a charitable trust. Will this limit be applicable to us?
—Shri CCVV Trust

Yes, as per Section 194A, threshold limit of Rs 40,000 will be applicable for trusts as well. Therefore, if the interest paid or credited to the trust is up to Rs 40,000, then no TDS will be deducted by the bank. This limit will apply only if the deposit is made in a scheduled bank or co-operative bank or post office. For other deposits like company deposits, the threshold shall be Rs 5,000 instead of Rs 40,000.

(The writer is partner, Ashok Maheshwary & Associates LLP. Send your queries to

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