Provident Fund interest is taxabale post-retirement; here is how to make best use of PF money

PF or Provident Fund should be withdrawn completely post-retirement and be invested in bank deposits, bonds or company deposits, advises investment experts.

PF or Provident Fund interest post-retirement is taxable and the government of India would stop giving interest on PF after three years if PF contribution is stopped. Photo: Pixabay

Provident Fund is a tax-free investment, which attracts many investors looking for tax saving vehicles. Since PF comes with a lot of security, people often hesitate to withdraw money from their account, event after retirement. However, most them are unaware that interest earned on PF post retirement is not tax free. In fact, the PF not withdrawn post-retirement is taxable and would attract interest for only three years post-retirement if the monthly contribution is stopped. Investment experts say it is better to withdraw entire PF maturity amount post-retirement and invest that into bank deposits, company deposits or bonds, which give better post-tax returns.

Speaking on the matter, Kartik Jhaveri, Director — Wealth Management at Transcent Consultants explained, "Post-retirement interest earned on PF is taxable. If the monthly contribution post-retirement is stopped, the government of India would give PF interest only for three years. So, it's better to invest in bonds, bank deposits or company deposits by withdrawing the entire PF maturity amount after retirement." Jhaveri said that these investments are less in risk and to some extent give an assured return to the investors. He added that these investments are highly popular among the senior citizens due to its features mentioned above.

On expected return on the above options, Kartik Jhaveri of Transcent Consultants said, "In bank deposits, one can expect around 6.5 per cent to 7.5 per cent while in company deposits it can be around 7 per cent to 8 per cent. However, bonds are the best option for investment as it can give return up to 8.5 per cent to 9 per cent."

Speaking on the taxation part of investment Jitendra Solanki, a SEBI registered investment expert said, "Post-retirement, one's income would naturally go down and hence saving Income Tax should not be the purpose of the investors falling under senior citizen category. It's better to withdraw the entire PF post-retirement and invest that in bonds or bank deposits. Company deposit investment is advisable for those investors who are ready to take some risk as company deposits are subject to market risk of the company."

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