Got the following question in an email which Gurpreet responded to.
I have changed job and new employer has opened new PF account. I have a choice of withdrawing old PF amt or transferring to new.
If I withdraw PF, will it be treated as taxable income? If yes, can I save tax by investing partially in any government schemes / bonds?
Here is the response.
PF withdrawal is taxable if a person has worked in the company for less than 5 years. Tax cannot be saved even by investing in any govt schemes / bonds. It just gets added to income from salaries, and then the taxability will depend upon the Gross Income of the assessee.
|Head||Statutory PF||Recognized PF||UnRecognised PF|
|Employers contribution to PF||Exempt from tax||Exempt up to 12% of salary (Basic +DA)||Exempt from tax|
|Deduction under sec 80C||Available||Available||Not available|
|Interest credited on PF account||Exempt from tax||Exempt up to 9.5%||Exempt from tax|
|Lump sum payment received at the time of retirement or termination of service||Exempt from tax||Exempt from tax:||Only employees share of contribution is exempt|
|a. If the employee has worked for at least 5 years with the employer|
|b. If the service is terminated on account of ill-health or by contraction or discontinuance of the employer’s business or any other reason beyond control of employee|
|c. If the employee transfers the balance in his PF to his new PF a/c maintained by his new employer|
Any thoughts on this – has anyone done this?