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provident fund

DT Fundas - Tarun rustagi ( Author) (1150 Points)

23 April 2010

dear all,

my friend is working in a pvt company from 2.5 years.but now he facing some financial problems because of that he want to withdew his provident fund amount.fund is an recognised provident fund.but his employer says that a employee can withdraw his share of provident fund only at the time of retirement.whether a employer can make rule in this regard if ur answer is no then what is the procedure for withdrawing the provident fund amount.

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vishnupriya (CA Final) (1418 Points)
Replied 23 April 2010

You can withdraw the amount of corpus accumulated in your provident fund account while in service, subject to certain conditions. You can withdraw in order to buy immovable property, for treating illness, for the studies or the marriage of your children. But this is possible only after the corpus (principal plus interest) has been locked in for a specific period. For instance, if you want to withdraw to buy a house, you can do so after five years. If the withdrawal is for any other purpose, the minimum lock-in period is seven years.

Otherwise, you can withdraw the entire corpus on retirement or termination of service. With regard to the taxability of the sums withdrawn, certain conditions must be satisfied. You must have completed minimum five years of ‘continuous’ service before making a tax-free withdrawal.

If you withdraw from the accumulated RPF account within five years of service, the amount will be taxed.

Suppose, an employee had to discontinue service within three years due to ill health or on account of discontinuance of employer’s business, he will be exempt from taxability of funds withdrawn from the RPF. If you make a withdrawal without the above conditions being fulfilled, the amount withdrawn will be taxed as follows.

Employer’s contribution will be taxable completely and so will the interest portion on employer’s and employee’s contribution. Further, your earlier rebates under Section 88 will be withdrawn and treated as your income in the year of withdrawal. Moving on to the post-retirement scenario, the employee can withdraw the entire RPF corpus in lumpsum which will be a tax-free withdrawal. However, he may choose to let the corpus remain with the company, and in such case, the corpus will continue to earn interest at the tax-free rate of interest that is presently 9.5 per cent.

Conclusion: If the need of your freind is the one mentioned in first para, he can withdraw the entire amount of PF.

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