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Interest from PF is always exempt

Q: I am one of the ONGC employees having a sizable amount in recognised Provident Fund (PF)? I have opted for pension scheme, which involved conversion of part of the amount in the PF as contribution for superannuation benefit. Since the scheme was not approved by the PF Commissioner, the matter was pending in the courts including the Supreme Court, so that the amount lying in the PF could not be drawn. Later the PF Commissioner permitted part payments and even provisional pension was sanctioned. Tax is being deducted at 10 per cent of the interest, though it is paid out of recognised provident fund, because of order requiring conversion.

It is understood that it is done on the advice of the Income-tax Department. I would like to be advised, whether the repayment from the PF including interest is exempt and if so whether tax deduction is correct?

I would also like to be advised whether the contribution paid towards pension appropriated from the PF would qualify for tax rebate? If it is taxable I would like to be advised whether standard deduction is permissible?

A: As long as the amount was lying in recognised provident fund, the fact that it was not drawn especially because of some dispute should make no difference to the eligibility for exemption of any interest or drawings from the recognised provident fund available under Sec. 10(12) which exempts any payment from any recognised provident fund. There is similar exemption for payment from approved superannuation fund under Sec. 10(13). There need be no doubt on this matter. Since the payment is exempt, tax deduction at source is not justified. Where it has already been deducted, the retirees can only claim refund by filing return. Where the contribution to superannuation fund is by way of appropriation of the amount to the credit in recognised provident fund, the contribution is not from chargeable income, so that there can be no tax rebate on such contribution. Since the amount drawn is not taxable, the question of standard deduction does not arise.

S. Rajaratnam

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