Tax on Provident Fund Withdrawal

by Manshu on March 14, 2011

in Tax

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?

{ 3 comments… read them below or add one }

ATUL BAJPAI August 16, 2012 at 4:11 pm

Hi

I need one query about the PF deduction before 5 years. Please let me know if i will withdrawn my PF before 5 years how much many % will deduct. My company has been deducted 30% falt of total amount. Please advice. Regards, Atul Bajpai

Reply

Sumit August 20, 2012 at 11:20 am

I have joined Co. A on 12Feb 2007, will be leaving Co. A on 3rd Feb 2012, thus fall short of 8 days of continuous service of 5 yrs. Now, i joinined in Co. B on 6th of Feb 2012 I have not transfered the PF amount to Co B. In such case withdrawl of the PF amount is taxable in my hand?

Reply

bemoneyaware December 13, 2012 at 5:25 am

Did an article on Tax on EPF withdrawal covering different kinds of Provident Funds (Recognised, Unrecognised), Overview of EPF or Recognised Provident Fund, when is withdrawal exempt from tax, Tax on withdrawal before 5 years, TDS on withdrawal amount, Relief under Section 89.

Reply

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