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Tax on PF Withdrawal

Vidisha Jain (CA FINAL) (155 Points)

22 January 2010

Hi,

One of the employees wants to withdraw the PF amount. He has rendered services for less than 5 years.

Is the PF amount withdrawn taxable ?

Thanks in advance

Vidisha

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15 Replies

ajay lohiya (article) (69 Points)
Replied 22 January 2010

withdrawl of PF is not taxable in the following situation:

1.on the death of employee,

2.on permanent disability of employee,

3. in case of non continus of business of employer,

4. on compleation of 5 years service

in given case amount is fully taxable . if it was received under aforesaid cases

CA. RUPESH JOSHI (Chartered Accountant) (174 Points)
Replied 22 January 2010

Ajay

In the instant case PF withdrawal is taxable only to the extent of employer's contribution and interest thereupon.

Employee's own contribution is not taxable

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 22 January 2010

Then what abt the interest on employee's contribution Rupesh sir

C.Balaji (Learner) (1867 Points)
Replied 23 January 2010

Agree with all....

PF is taxable......

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 23 January 2010

In which section it is stated .please clarify .

Sorabh Gupta (Manager ( Taxation )) (877 Points)
Replied 23 January 2010

Dear Sivaraman

Hope this will clear your doubts.......

The general perception that whatever is the balance with the Provident fund is non taxable at the time of with drawl. However , it is not entirely correct. There are circumstances when even the savings in provident fund (accumulated balance ) becomes taxable.

Section 10(12) of the I T Act exempts all payments from any provident fund set up by Central Government or any provident fund on which Provident Fund Act applies. This means , if you are employees of Central government or State Government or of any employer whose fund are managed by Provident Fund authorities , any payment from such provident fund is total exempt .

Be careful in case of being member of recognised provident fund.

Wherever, employer maintains provident fund of the employees through a trust and gets recognition from Commissioner of Income tax for such trust , the employee needs to be careful regarding the taxability of accumulated balance , because the payments from such recognised provident fund is taxable in certain circumstances. Section 10(12) of the I T Act gives exemption to payment from recognised provident fund as under

(12) the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule ;

Rule 8 of Part A of the Fourth Schedule of I T Act provides the circumstances under which the accumulated balance payable to an employee is exempt from tax . If employee fulfills any of following conditions, payment from recognised provident fund is tax free :

(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employees ill-health, or by the contraction or discontinuance of the employers business or other cause beyond the control of the employee, or

(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer.

Continuous Service in Case Of Job Hopping

Explanation to Rule 8 provides that in case balance payable to an employee includes amounts related to fund maintained by former employers and transferred to new recognised fund from which payments are being maintained, continuous period of five yearsshall be counted by aggregating the numbers of years with other employers.

2 Like

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 23 January 2010

Thanks Mr Sorabh Gupta For giving Your Reply in this regard

manish (Article Assitant) (358 Points)
Replied 23 January 2010

Yes PF is taxable in that time but only the amount not taxed previously shall become taxable. (for RPF & URPF)

Nothing shall be taxable if:

1. Employee left the job after atleast 5 years of service or,

2. Due to ill health, discontinuance of employer's business or reasons beyond his control or,

3. the balance is transfered to RPF with new employer, in such case for computing the period of 5 years under the new employer, the period of service rendered under the previous employer shall be included.

Nothing Shall be taxable in SPF.

sravani (ase) (21 Points)
Replied 03 August 2010

Hi,

Thank you all for providing wonderful information.
Can somebody clarify me the following -

My period of service is less than 5 years, i fall short of 2.5 months. I am going for my Phd which will be for 5 years, and hence there is no possibility for me to transfer the account to a new employer. But now that tax will be deducted on my pf, which is maintained as an RPF, is it possible that, I create a new ppf account with the govt and transfer the amount there. If yes, Will this get tax exemption later when I withdraw ?

Also, how much tax will be deducted ? Can anybody explain?

CA Vijay Jain (Chartered Accountant) (176 Points)
Replied 03 August 2010

That the amount & intrest withdrawn of employer's contribution is not taxable in undermentioned cases

1. on death of employee.

2. on permanent deseases

However, the amount of employee's contribution will be exempt but interest is taxable under other sources

Shantnu (Senior Software Engineer) (22 Points)
Replied 30 April 2012

Hi, If I want to withdraw my PF funds after completion of 5 years. But have a gap of 1 month in my service as I did no job for 1 month due to some personal reasons. Then will PF amount be taxed?

Mayur Jain (IPCC student) (42 Points)
Replied 01 May 2012

IN CASE OF SPF,,WITHDRAWL OF PF IS NOT TAXABLE...HOWEVER IN CASE OF RPF(IF WITHDRAWN BEFORE 5 YEARS) AND URPF(WITHDRAWN ANYTIME) .....WHOLE AMOUNT IS TAXABLE

Shantnu (Senior Software Engineer) (22 Points)
Replied 09 May 2012

Hi,

If I want to withdraw my PF funds after completion of 5 years. But have a gap of 1 month in my service as I did no job for 1 month due to some personal reasons. Then will PF amount be taxed?

If yes than what if I withdraw PF after 5 years of continuous service after the gap in service will my PF be still taxable?

CHIRAG PATEL (Article Assistant) (21 Points)
Replied 09 July 2012

Hi....Can we take benefit of sec. 10E in case of PF withdrawal.....? TDS has been deducted from withdrawal amount...can i claim that withdrawal amount u/s. 10E and get that TDS back as refund......? Plz guide me....