A career break can significantly impact the tax treatment of Employees' Provident Fund (EPF) interest earnings. According to CA Chandni Anandan, tax expert at ClearTax, while the accumulated EPF balance remains tax-free after five years of service, some Income Tax Appellate Tribunal (ITAT) rulings hold that interest earned after leaving employment can be taxable as income from other sources. The distinction is crucial because the five-year service rule and tax treatment of post-employment interest operate differently, with the five-year condition determining tax exemption on the balance at cessation, but not automatically extending to interest earned during employment gaps. EPF interest remains exempt while the account is recognised and the person is employed, so even if an employee has completed five years of service and can withdraw the EPF tax-free, that does not necessarily mean all future interest earned after leaving the job will also remain tax-free. As per Zee News, under Section 10(12) of the Income Tax Act, zero tax applies to the entire amount, including the employer's contribution, employee's contribution, and interest earned, if the employee has completed five continuous years of service. However, employees must understand the distinction between the amount accumulated during the years of service and the interest earned during the cessation period, with the interest accrued during the gap being considered 'income from other sources' unlike salary.
Many employees mistakenly assume that their Employees' Pension Scheme (EPS) service history transfers automatically after withdrawing their EPF balance, but this is not the case. According to reports from Mint, EPS operates separately from EPF and serves a different purpose - tracking eligible pensionable service rather than building retirement corpus. While EPF helps build a retirement corpus through contributions and interest, EPS primarily tracks an employee's eligible pensionable service, with longer service periods generally resulting in higher pension benefits after retirement. The EPS contribution rate is 8.33% of monthly wages, which is diverted directly from the employer's total 12% contribution to the employee's EPF account, with employees not required to contribute separately towards EPS. The EPS wage ceiling has been enhanced from ₹15,000 to ₹25,000 per month effective September 17, 2026, with the maximum employer contribution increasing from ₹1,250 to approximately ₹2,083 per month. For salaried employees earning ₹50,000 basic salary, this means the employer's full ₹6,000 contribution is partially diverted to EPS (₹2,083), leaving approximately ₹3,917 for EPF contributions.
The critical impact of career breaks becomes evident when employees realize they need at least 10 years of eligible service to qualify for monthly pension benefits. As reported by Mint, failing to carry forward pensionable service from previous employment can result in incomplete employment history records. The EPS contribution rate is 8.33% of monthly wages, which is diverted directly from the employer's total 12% contribution to the employee's EPF account, with employees not required to contribute separately towards EPS. The EPS wage ceiling has been enhanced from ₹15,000 to ₹25,000 per month effective September 17, 2026, with the maximum employer contribution increasing from ₹1,250 to approximately ₹2,083 per month. According to Zee News, if an employee has ₹15 lakh in the EPF fund and has a two-year gap in employment, assuming total interest earned of ₹1.5 lakh during the two years, withdrawal of the ₹15 lakh might be exempted under Section 10(12) of the Income Tax Act, but the interest amount of ₹1.5 lakh would still have tax implications. The Employees' Pension Scheme, 2026 was notified on June 29, 2026, replacing EPS 1995 and the Employees' Family Pension Scheme, 1971, while maintaining the 8.33% employer share and 1.16% Central Government share.
Even if employees have already withdrawn their entire EPF balance but realize their EPS service history was not carried forward, they can still transfer their service record. According to Mint, employees can submit Form 13 through the EPFO member portal and complete the transfer process. The transfer process can be delayed by common errors including incorrect personal details, UAN records, or KYC information, as well as missing or incorrect exit dates in previous employer records. The Employees' Pension Scheme, 2026 was notified on June 29, 2026, replacing EPS 1995 and the Employees' Family Pension Scheme, 1971, while maintaining the 8.33% employer share and 1.16% Central Government share. According to Zee News, if an employee decides to withdraw the amount during the gap or after joining another organization following a period of unemployment and meets the necessary condition of five continuous years of service, the PF, including the accrued interest, is tax-free, but the treatment of the interest earned during unemployment would be different.
To correct exit dates on the EPFO portal, employees must follow specific steps as outlined by Mint. The process involves logging into the member portal using Universal Account Number (UAN) and password, navigating to the Manage tab, clicking on Mark Exit option, selecting appropriate reasons for leaving, and entering the correct date of exit. The system requires Aadhaar-based OTP verification for submission, with members ensuring their mobile number is linked with Aadhaar and in their possession during the process. For employees with less than 10 years of service, they can take the withdrawal benefit through Form 10C or request a Scheme Certificate to preserve their service for future employment. According to Zee News, if a person has not met the necessary requirements for tax exemption, such as breaking EPF contributions before completing five years, and withdraws the fund after a year of unemployment, then an additional layer of taxes comes up, with PF not entirely free and coupled with taxes applicable on the interest earned during job loss.
