Is Income Tax deductible on PF Withdrawal

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Guest

Guest (Querist)

28 October 2009 Is Income Tax deductible on PF Withdrawal in below cases: -

1. PF withdrawn before 5 years of employment.
2. PF withdrawn after 5 years of employment.

CA SANJAY MUKHERJEE

CA SANJAY MUKHERJEE (Expert)

28 October 2009 1. Yes, On emplyoers' cont. and interest there on( if exceeds the limit) .

2. No

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)

28 October 2009 agree

Guest

Guest (Querist)

28 October 2009 Hey Guys,

Exceed would mean above 12% contribution...right?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

01 August 2024 Yes, income tax implications on Provident Fund (PF) withdrawals depend on the duration of employment and the amount of contribution. Here’s how it works:

### 1. **PF Withdrawal Before 5 Years of Employment:**

- **Taxability:** If you withdraw your PF before completing 5 years of continuous service, the amount withdrawn is taxable in your hands.
- **Tax Deduction:** The amount of PF contribution withdrawn is subject to tax as per your applicable income tax slab rates.
- **TDS:** The employer is required to deduct TDS (Tax Deducted at Source) on PF withdrawals if the amount exceeds ₹50,000. The rate of TDS is generally 10% (plus applicable surcharge and cess), but if the PAN is not provided, the rate could be higher.

### 2. **PF Withdrawal After 5 Years of Employment:**

- **Taxability:** If you withdraw your PF after completing 5 years of continuous service, the withdrawal is generally exempt from tax.
- **Conditions:** The 5-year period includes service with multiple employers if the PF accounts are transferred from one employer to another without withdrawal.
- **Interest:** The interest earned on the PF balance is also exempt from tax if the withdrawal is after 5 years of continuous service.

### **Contribution and Tax Implications:**

- **Contribution Exceeding 12%:** PF contributions made by the employee are typically at a rate of 12% of the salary. Any contribution above this rate, which is not mandated by the employer, is referred to as **Voluntary Provident Fund (VPF)**. The excess contribution is also eligible for tax benefits under Section 80C, up to the overall limit of ₹1.5 lakh per annum. However, if the VPF is withdrawn before completing 5 years, the interest on the VPF portion will be taxable.

### **Summary:**

1. **PF Withdrawn Before 5 Years:**
- Taxable as per income tax slab.
- TDS applicable if amount exceeds ₹50,000.

2. **PF Withdrawn After 5 Years:**
- Exempt from tax.
- Includes both principal and interest.

**Note:** Always ensure you keep proper records of your PF contributions and withdrawals. It’s a good practice to consult with a tax professional for personalized advice, especially if you have multiple PF accounts or complex employment history.

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