Tax on Provident Fund Withdrawal

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?

327 thoughts on “Tax on Provident Fund Withdrawal”

  1. Hi,

    The company I was working since 2007 got merged with another company and hence our PF were also transferred (after giving transfer request). I quit this company last year. Now, if I check EPF site for my PF from first company’s it says transferred. However, when I check PF number from the second company I joined it says invalid or data not updated. The second company has its own PF trust. Does the PF number hold good on the EPF website?

    Appreciate feedback

    1. Hi Prasad,
      Yes ideally the PF # should hold good on EPF website, it should be updated….In this case u may need to contact ur Co or the concerned PF office..

      Thanks

  2. Hi Gurpreet,
    Your response awaited.
    ne line is added in my last post i.e This amount (105000) carry both EPF and EPS amount and EPF amount is maintained in company’s trust.

  3. Hello,
    Thank you for this informative blog..
    Actually my question is
    I have worked total 6.5 years. first 3 years the EPF was collected in company trust.
    After that 3.5 years my EPF was collected at EPFO. and in the meantime I got my first company’s EPF transferred to my second company’s EPFO account.
    Now I am going to pursue a full time education for 1 year.
    Could you please let me know if my EPF amount will be subject to tax if i go for withdrawal? and how much wd be the tax in percent terms?
    If I keep it in EPFO without withdrawal and transfer later after 1 year after i rejoin into service.. will the amount collected in my account earn me interest during this 1 year when I am off to study? Is keeping the EPF account dormant between employments allowed?

    Thanks and Regards

  4. Hi
    My EPF account is maintained by EPFO Chandigarh office
    Region Name Region Code Office Code Office Name
    CH – CHANDIGARH PB CHD CHANDIGARH

    Please tell me that if it is Statutory PF or Recognized PF.
    Also tell me if the company has it own trust, then is it Statutory PF or Recognized PF or other?

    Thanks

    1. Hi Vandita,
      Statutory PF is for Government/University/Educational Institutes (affiliated to university) employees.
      The Chandigarh one is recognised PF
      Thanks

  5. How did you calculate this?

    My actual last salary detais are for ref…
    Earnings Rs. ……
    Basic 6775
    House Rent Allowance 788
    Conveyance 187
    Site Allowance 3750
    Deduction Rs. …….
    MT Insurance 40
    Employee ESI Contribution 202
    Employee PF Contribution 813

    Total Earnings 11500
    Total Deduction 1055

    Net Pay : 10445

  6. My last gross salary was Rs 11500
    My total working in the company was 4 yrs 10 mths
    As per PF statement my amount is Approx. Rs 105000 with interest
    How much tax will be deducted on my PF amount?

  7. Dear Sir
    Actually I am working on Employee Provident Fund Project..
    Please tell me what are rules and regulation of Pension and withdrawal amount…
    please reply me soon……..

  8. Hello Gurpreet,

    I worked for Company ‘A’ from Feb 2007 till Aug 2008(19 months), Then i joined a company ‘B’ Aug 2008 till Sep 2011(3 yrs 1 month). Now i joined Company ‘C’ from Sep 2011….

    I have transfered my PF amount from Comp A to Comp B, While leaving comp B i have opted for withdraw.
    1. What is the rate of Intrest which i will get on the total Accumulation ?
    2.How does the Intrest rate work ?
    3. If incase i want to continue in accumulating to my 3rd company what should i do now ?
    4. EX:if my total accumulation is 1,90,000/- how much will i get after Tax deduction ?

    Thanks & Regards,

    Manjunath

    1. Hi Manjunath,
      1. I think the Interest rate is 9.5%, that will be applicable.
      2. Interest rate is fixed by Govt
      3. For accumulating u should transfer ur PF and not withdraw it
      4. The tax deduction depends upon ur salary which ur drawing from the co. The tax slab will be calculated accordingly.
      Thanks & Regards,
      Gurpreet

  9. I have a question reagrding myh case.

    I joined a company in MAY 20007 & resigned in NOV 2011, now I am going abroad and I will not be joining any where bcoz of medical reasons.
    If I withdraw PF after MAY 2012, still there would be a deduction , if yes, then how much.

  10. What are the ways to save deduction in experience in 1 company is less that 5 yrs and I do not wish to join any where due to medical resons.

  11. Hi,

    If I have not worked for continous 5 yrs and If in case I join somewhere else, than can I withdraw PF while working. If yes,than would that be taxable??

  12. I joined an organization in May 2007 and resigned in Nov 2011 due to medical reasons. I am not working anywhere and after that I would only do business abroad.So, If I withdraw the PF after MAY 2012, would there be any sort of TAX deduction. plz confirm,
    thnx

    1. I have a question here.. 5yrs…what is the concept of this????
      Is dat:
      1) 5 yrs in 1 company
      2) 5yrs continous deposits in 1 partcular PF a/c
      3) Withdrawl after 5 yrs ( working or not)
      4) Exemtion or how to avoid tax deduction?

      1. Hi Rattan,
        the answer is option 2. So, in ur earlier ques, since the deposit in PF was less than 5 yrs, so it will be taxable, if u withdraw it now.

        Thanks & Regards,
        Gurpreet

      2. Hi Gurpreet,

        Thanks for ur reply, I understand that tax deduction wud happen if i withdraw it right now.
        But, If I do it after MAY 2012 , then still wud there be a deduction.??

  13. I resigned My previous company In August 20011 after working 22 month there .Now for my requirement If I am going to withdraw my PF, is that PF withdrawal amount will be taxable? if taxable then how much??????????/

    1. Hi Rajesh,
      If that is the only co where u worked and u don’t hv any other PF, then the amout withdrawn will be taxable….the entire amount of PF u withdraw will be taxable

      Thanks & Regards,
      Gurpreet

      1. Gurpreet,
        Currently I having NEW PF account with new company and want to old company PF withdrawal .Please tell me how much tax will be deducted……

        1. Hi Rajesh,

          The amount of Tax that will be deducted will depend that how much income u were withdrawing with the earlier co i.e. in which Tax slab u were being taxed earlier. The same slab will be applied.

          Thanks & Regards,
          Gurpreet

  14. Hi,

    I worked with company A for 2.5 yrs (company PF trust) and then got the PF transfered to company B where I worked for 3 yrs (Govt EPF). I joined company C (Govt EPF) for 1 yrs and now I am in company D for the last 5 months. I have neither withdrawn nor transfered from B and C. Pls suggest whether withdrawing my PFs from B and C attract tax or should I still reposrt to transfers.

    Is the 5 yrs clause for tax exemption only valid when the service is with the same employer?

    Thanks

    1. Hi Madhukar,

      U shud transfer ur PF and do not withdraw it….the clause of 5 yrs means continuous employment, whether or not with 1 employer…the only thing is for 5 yrs the PF should not be withdrawan..

      Thanks & Regards,
      Gurpreet

      1. Thanks Gurpreet,

        Should I transfer it only for the long term benefit purpose? I reckon there would be no tax since the total service is unbroken for more than 5 years.

        Regards,

      2. Hi Gurpreet,
        Thanks for all the information here. I really appreciate it.
        I similar to Madhukar worked for company A for 3 years and company B for 3.5 years continuous employement all 7 years+. I want to withdraw the PF money through the company B which I have resigned recently. Would I have to pay any tax on the PF withdrawn?

        Waiting for your valuable input.

        Thanks
        Majid.

  15. Hi,

    I have resigned from the current company and my last working day is 17th Feb 2012. 14th Feb 2012 I am going to finish 5 years in that company. So my service in that current company is 5 years 3 dyas. If I am going to withdraw my PF, is that PF withdrawal amount will be taxable?
    Also pl. let me know shall I eligible for Gratuity.

    Thanks
    Ganesh R

  16. Hi Gurpreet,

    I joined company A in Jun 2006 and left on Nov 2008, effectively worked for 2.5 yrs in a reputed MNC in Bangalore (PF account in Bangalore), I think that would mean a recognized PF.
    I joined new company in 2009 and still continuing (3 yrs), but in my new company I have opted out of the PF scheme, hence there is no PF here. The PF amount along with the employer contribution is paid to me directly after being taxed.

    Now, I checked the balance in my old PF acc epfonline, I want to withdraw the amount and close the pf account. now please tell me, if the pf will be taxable, and to what extent it will be taxed. Since the PF account is currently lying unused since 2008 end, there is some interest deposited, will the tax be on the principal amount or the combined (principal + interest)

    Thanks,
    MK

  17. I am leaving my current job after 6 years of continious service, please confirm me the following :
    1. On withdrawal, will that amount be taxed ?
    2. I heared that there is a provision which say that, the employee should not join any organisation for 2 months after serving the organisation for more than 5 years, in order to claim the tax free withdrawal amount.
    3. If i transfer this amount to other organisation, and from there if i withdraw this for the purpose of buying the flat, will i get that fund tax-free ?

    1. Hi Kannu,

      Please see my answers below:
      1. No, amt will not be taxed
      2. You can withdraw ur PF not b4 2 months of leaving the organisation, (yes, ur correct)
      3. ur withdrawal amt will be tax-free, and you;ll need to show in ur Return of Income as disclosure that with the amt withdrawn u’ve purchased a house property.

      Thanks & Regards,
      Gurpreet

  18. hi
    i have total 5 years of multiplw companies as follows:
    a. Apr 2005 to Dec 2006 — 1 year 8 months (leave 4 months for )
    b. (private pf fund trust)dec 2006 to feb 2007 1 year 3 months
    c. (private pf fund trust)mar 2007 to Apr 2008 1 year
    d. (private pf fund trust)Oct 2009 to may 2010 8 month
    e. (present company —private pf fund trust)june 2010 till date
    till now i have trnsferred my pf til d company. After my e company i want to with draw my pf ammount. I want to know following queries?
    1.After completion of 5 years of work with long leaves or gaps can we get pf as non taxable?
    2.After my current company when can i get my pf as non taxable ammount?
    3.Where can i get the all the pf rules?

    Thanks in advance
    Rekha

    1. Hi Rekha,
      Please find my answers below :
      1 & 2. If your company says that leave period is a part of ur job and will be regarded as experience with that co, in that case you 5 years will be complete and the withdrawal amt will not be taxable, otherwise it will be taxable.
      3. You can search google as EPF rules.

      Thanks & Regards,
      Gurpreet

      1. Hi Gurpreet

        Thanks for the reply.
        a. Apr 2005 to Dec 2006 — 1 year 8 months (leave 4 months for )
        b. (private pf fund trust)dec 2006 to feb 2007 1 year 3 months
        c. (private pf fund trust)mar 2007 to Apr 2008 1 year
        d. (private pf fund trust)Oct 2009 to may 2010 8 month
        e. (present company —private pf fund trust)june 2010 till date
        In my above work experience i have taken long leave for maternity leave and I have taken break 7 months in my career from apr 2008 to oct 2009.
        Even if I want to withdraw my pf in march 2012 will it be taxable?

        Thanks in advance.
        Rekha

        1. Rekha,
          Just going by a simple calculation : from Apr 2005 to Mar 2012 it is 7 years.
          Out of which ur break/leave is
          1. 4 months
          2. Apr 2008 – Oct 2009 = 19 months

          Total break = 23 months
          So net period is 5 years and 1 month…hence it should not be taxable.

          Let me know, if ur able to understand the above calculation or I’ve misinterpreted ur info

          Thanks & Regards,
          Gurpreet

  19. Hi,
    I just want to know that I am leaving a company after 17 years. There are two component in EPF, employee and employer’s, what amount shall i get? Only employee’s contribution or both employee’s and employer’s?
    Please let me know.

  20. Hello Gurpreet,

    I have some amount in my VPF account. Is it possible to withdraw for my sister marraige. I have completed 3 years of service.

    With regards,
    Krishna

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