Tax on pf withdrawal

This query is : Resolved

Guest

Guest (Querist)

10 March 2014 I am joining another organization after working for 4 years in my current organization. PF laws are not applicable on the new organization at the moment and will be applicable after approx. 1 -1.5 year. I don't want to pay tax by withdrawing my PF balance and can't even transfer it for the time being. Please advise is it possible that I can hold my balance for more than a year and still retain the period of 4 years served so that once I transfer the amount, the condition of 5 years of continuous service will be met only after 1 more year of service in the new company.

Rupesh Jain

Rupesh Jain (Expert)
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10 March 2014 you can withdraw the money after one year

Guest

Guest (Querist)

10 March 2014 Hi Rupesh, I mean that I want to transfer the balance after 1 year into my new company account and then will those 4 years of service (in last company)be valid for providing me exemption making a total of 5 years of continuous service

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Hi Rupesh,

Thanks for the clarification. Your question is very relevant and here's a clear breakdown to help you avoid tax on your Provident Fund (PF) withdrawal and ensure exemption under Section 10(12) of the Income Tax Act.

✅ Objective:

You want to retain your PF balance from your old company, not withdraw, and later transfer it once your new company becomes PF-registered — so that your total PF contribution period adds up to 5 years for tax-free withdrawal.

📌 Key Rule: Tax Exemption on PF Withdrawal

As per Section 10(12) read with Rule 8 of Part A of the Fourth Schedule:

PF withdrawal is tax-free only if you have completed 5 years of continuous service.
"Continuous service" includes the period with previous employers if PF is transferred — i.e., no break in PF membership.
✅ Your Plan – Is it Valid?

You’re asking:
Can you wait 1 to 1.5 years, then transfer your old PF into the new company's PF account (once they register)?
Will that count as 5 years of continuous service?
✅ Yes – This is possible, if:
You do not withdraw the PF.
You retain your PF account with the old employer (EPFO).
Once the new employer gets PF registration, you transfer the old PF into the new PF account.
In this case:

Your service period with the old employer (4 years) + future service in the new company will be combined.
It will be treated as continuous service for PF purposes.
👉 Once total service reaches 5+ years, withdrawal will be tax-free.

⚠️ Important Notes:

Do not withdraw PF now, or else:
It will be treated as a premature withdrawal (less than 5 years),
You’ll have to pay tax on employer contribution, interest, and claim reversal of Section 80C benefits.
Interest on the PF account (if left idle) is tax-free for 3 years after you leave your job.
After 3 years, interest earned becomes taxable as “Income from Other Sources”.
Keep UAN active and ensure KYC is updated.
This will make the eventual transfer process easier.
✅ What You Should Do:

Keep your UAN active.
Don’t withdraw PF.
Wait until your new employer gets registered under EPFO.
Then initiate a PF transfer using the EPFO Member Portal.
Ensure your total service adds up to 5 years, and then withdraw, tax-free.
📌 Summary:

Item Status
Withdraw PF now ❌ Taxable (premature withdrawal)
Hold PF, transfer after 1 year ✅ Valid
Service period combined ✅ Yes, if PF is transferred
Tax-free withdrawal ✅ After completing 5 years combined

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