Provident Fund Withdrawal : How Can Avoid Paying Income Tax..?
by Ms. Parizad Sirwalla, KPMG
The
withdrawal of the accumulated balance from a recognised PF triggers tax
implications if the employee has not rendered continuous services for 5 years
or more to the employer.
While computing the continuous services of 5
years, the period of previous employment is also included, if the accumulated
balance maintained with the old employer is transferred to the new employer.
Assuming that the earlier job was your first job,
there would be no transfer of accumulated PF balance from a previous employer.
As the
total period of service with the ex-employer was less than 5 years, withdrawal
of accumulated PF balance shall be taxable in the financial year (FY) of
withdrawal.
Merely holding the PF account for 5 years will
not alter the tax liability. There has to be continuous service with the
employer for 5 years or more. The total of employer’s contribution plus
interest will be taxed as salary.
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| Parizad Sirwalla, KPMG |
The amount of tax benefit claimed under section
80C of Income-tax Act, 1961, on account of your own contribution to the
recognised PF, shall be taxed.
Also, the interest on your own contribution shall
be taxed as ‘income from other sources’. The tax rate would depend on the
applicable income slabs in each of the FYs during which the PF contributions
were made.
Further, surcharge (as applicable) and education
cess shall be applicable for each of the FYs and will also be payable in
addition to the basic income tax.
Accordingly, after the withdrawal you would be
required to pay tax irrespective of the fact that your taxable income and other
income are below the income exemption limit applicable for the FY of receipt of
PF accumulations. But you will be eligible to claim relief under the section
89.
The withdrawal of PF will be as per the
provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act,
1952, which requires you to have a non-employment period of 2 months after
leaving your job.
If you continue to retain the accumulated PF
balance maintained with the old employer, and in future if you change job and
move to a new company where PF is applicable, you can transfer the accumulated
PF balance to the PF account maintained with new employer.
In such a situation, at the time of withdrawal of
the accumulated PF balance, while computing the period of continuous services
with the new employer, the period of services rendered with your ex-employer
will also be included.
If the cumulative years of service now exceed 5
years, there will not be any tax implications on PF withdrawal.
About the author
Ms. Parizad Sirwalla is Partner (Tax) at KPMG
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