I had worked in the previous company for 4.8 years and have not withdrawn the accumulated provident fund (PF) money yet. I am currently working in another company. I want to withdraw the PF amount from my old employer. Do I need to pay tax on the withdrawal since five years have passed ? — Krishna Jayan
As per the domestic tax laws, if an employee, without rendering continuous services for five years or more to the employer, withdraws the accumulated balance from a recognized PF, the same becomes taxable in his hand. While computing the continuous services of five years, the period of previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account of the new or current employer. We have assumed that your job with the earlier company was your first job or that you had not transferred your PF balance with your previous employer to the new PF account.
As the total period of service with the old company is less than five years (4.8 years), withdrawal of accumulated PF balance shall be taxable in the financial year (FY) of withdrawal. Further, unlike Payment of Gratuity Act, wherein years of service in excess of six months are considered as a full year of service, there is no such express provision in the domestic tax law for taxability of accumulated PF balance.
The total of employer’s contribution plus interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C on account of your own contribution to the recognized PF shall be taxed. Also, the interest on your own contribution shall be taxed as “Income from other sources”. The tax rate would depend upon your applicable income slab in each of the FY (s) during which the PF contributions were made. The surcharge (as applicable) and education cess, shall be applicable, for each of the FYs.
Please note that if the accumulated PF balance in the account is held for five years without continuous service of five years, it still attracts tax.
Further, as per the Finance Bill 2015, effective from June 2015, it is proposed that the Trustee of the Employees’ Provident Fund Scheme or the person authorized to make payment under the PF scheme should deduct tax at source at the rate of 10% on taxable PF withdrawal, where payment is Rs.30,000 or more. In case Permanent Account Number (PAN) is not furnished by the employee, tax is to be deducted at maximum marginal rate. Accordingly, if the PF is withdrawn, tax would be deducted at source.
You can also transfer the accumulated PF balance from the old employer to the existing recognized PF account maintained, if any, with the new employer. In this case, in future, if you withdraw the accumulated PF balance after rendering continuous services for five years (including 4.8 years’ service rendered to old employer), there will be no tax implications on withdrawal.