17 August 2014
Entire amount as mentioned above will be taxable since the amount has been withdrawn before completion of 5 years of continuous service,
17 August 2014
actually the taxation will be as follows:
Employer contribution plus interest thereon: taxed under salary as profit in lieu of salary
Interest on employee contribution: as income from other sources
Employer contribution: in this regard, you need to compute the tax benefit claimed in earlier years. This tax benefit is to be added to your taxable income in the current year.
For eg: lets say your tax rate in previous years was 10%. So under 80C, you got benefit of 10% of 30000 ie Rs 3000. So this 3000 is to be added to your income. The remaining 27000 is not to be added to your income.
17 August 2014
Nikhil Ji i think the amount of deduction claimed under section 80C is taxable and not the tax amount i.e., to say that if Rs 30000 was claimed as deduction under section 80C then Rs 30000 will be taxable. Because this amount went un-taxed due to claiming of deduction under section 80C and now the same amount needs to be offered for tax.
17 August 2014
you are not wrong. Actually i worded it wrong. What I wanted to convey was that the tax saved shall be added back to your tax liability. So the second last sentence should be read as "Rs 3000 is to be added to your tax liability"
1. tax saved will be added to tax liability (view of nikhil kaushik & associates)
or
2. income not taxed due to deduction allowed shall be added to income.
(view given by sanjay gupta sir)
I think tax saved due to deduction shall be added back since adding amt claimed as deduction in income then there can be slab rate problem which may result in higher tax.
26 July 2025
Here’s a clear breakdown of the **taxation of Provident Fund (PF) withdrawal** for Mr. X who worked for 3 years, with the given components:
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### Facts Recap:
* **Employer contribution:** ₹30,000 * **Interest on Employer contribution:** ₹2,000 * **Employee (Own) contribution:** ₹30,000 * **Interest on Employee contribution:** ₹2,000 * **Duration:** 3 years
---
### Taxation Rules for Recognized Provident Fund (RPF):
1. **If the employee has completed continuous service of 5 years or more:**
* The entire amount (employer + employee contributions + interest) is **exempt from tax** under Section 10(12).
2. **If the employee leaves the job before completing 5 years of continuous service:**
* **Employee's own contribution + interest thereon** = **exempt from tax** (since contributions were already allowed as deduction u/s 80C). * **Employer's contribution + interest thereon** = **taxable as income from salary** in the year of withdrawal.
---
### Applying to Mr. X (3 years service):
* **Exempt:**
* Own contribution (₹30,000) + Interest on own contribution (₹2,000) = ₹32,000 (exempt) * **Taxable:**
* Employer contribution (₹30,000) + Interest on employer contribution (₹2,000) = ₹32,000 (taxable as salary income)
---
### Additional Notes:
* Tax saved on contribution under 80C is not *added back* to income on withdrawal. That deduction is allowed once when contribution is made; on premature withdrawal, only the employer’s contribution and interest thereon is taxed. * The taxable amount is added to income and taxed as per applicable slab rates.
CAclubindia
