Does withdrawal of pf from tata provident fund qualify as exempt income?

Tata companies keep the employee's PF in the Tata Provident Fund instead of keeping it in the EPFO.

So if an employee works at a Tata company (company 1) for 6.9 years, resigns to join another non-Tata company (company 2), where company 2 creates a new account for her at the EPFO and are having difficulty transferring the PF from Tata Provident Fund to the new account and even after 1.5 years of trying they are unable to transfer it, and then if the employee resigns from company 2 and chooses to withdraw the entire amount from her Tata Provident Fund to fund her education, and company 1 agrees and transfers the entire amount to the employee's bank account, then is the amount exempt from tax?

The employee uses part of the amount to fund her education and the remaining is invested in debt funds and tax saving funds.

Replies (4)

I asked the Tata company, and they say that they follow the EPFO rules. But they declined to comment on anything about whether the amount is taxable. I consulted a CA and he said that since she completed 5 years at the Tata company, the amount withdrawn is tax exempt.

If that's the case, then why was the company declining to comment about tax liability?

Could anyone on this forum help with a link to where these rules are specified by the Income Tax department? I'd like to verify it.

 

ps: I found Tata's handbook online: https://sangam.tatapower.com/irj/go/km/docs/SangamFiles/content/Payroll/Employee%20Hand%20Book.pdf

Hi,

Taxability of Provident fund withdrawn is governed by Employees Provident Fund & Miscellaneous Provisions Act along with the Rules framed thereunder. Refer the below image.

Above image is a snip from government website.

For questions related to provident fund, esi, prof. tax or similar labour laws I would recommend a labour law consultant. However, few CAs who specialize in such laws can also answer your questions.

Best,

Aditya

www.iravya.com

 

 

why was the company declining to comment about tax liability?

Read more at: https://www.caclubindia.com/forum/does-withdrawal-of-pf-from-tata-provident-fund-qualify-as-exempt-income--519861.asp
why was the company declining to comment about tax liability?

Read more at: https://www.caclubindia.com/forum/does-withdrawal-of-pf-from-tata-provident-fund-qualify-as-exempt-income--519861.asp

1. In your case make sure the EPF is a recognized one. Only those EPF which are recognized by the Commissioner of Income Tax will be allowed as an exemption. 
2. If it is unrecognised then it will be taxable even if it is withdrawn after 5 years. The entire contribution will be subject to tax. 
Please correct me if the above solution has an alternative view. 

Thank you Aditya and Suresh, but I got my answer sometime back. Yes, it is a recognized EPF, but if the withdrawal is made let's say, 6 months after resignation and if the employee had completed 5 years of service in the company, then the amount accumulated until the service is tax exempt. After he left the job (assuming he didnt transfer the EPF amount to an EPF account of another company) the interest accumulated for the 6 months should be declared under other sources of income. Since schedule IV is not very clear about this particular rule, there was a tribunal ruling somewhere around 2017 that clarified it. https://www.financialexpress.com/money/warning-your-epf-account-will-now-be-taxable-if-you-have-quit-or-retired-from-job/935448/

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