Is PF withdrawal taxed?
RelaxWithTax | June 27, 2006
You have a question about house rent allowance, medical allowance or even a general tax query.
Here's where we step in with our experts, Relax With Tax.
Got a question for Relax With Tax? Please write to us!
When I left my earlier company, I opted for the withdrawal of my provident fund money that was being maintained by the company in a trust.
The company deducted tax on withdrawal.
I was under the impression that Employees Provident Fund is tax-free.
Also, if I withdraw money from my Public Provident Fund account will that also be subject to tax?
- Shilpi Srivastava
We presume your earlier company maintained a recognised provident fund account, which is referred to as RPF.
On withdrawal from RPF at the time of termination of service, the accumulated balance is exempt from tax only if you have been in continuous service for a period of five years or more.
Service rendered to the previous employer is also to be included.
If the continuous service is less than five years due to reasons beyond your control (ill health, or discontinuance of employer's business), you still will be eligible for exemption.
If not, then you will be taxed on withdrawal of the accumulated balance from the RPF.
Withdrawals from the PPF account is based on defined eligibility criteria. Such withdrawals are not taxed.
PF vs PPF: What's the difference?
I have got an offer from a company who has filed for an exemption from Provident Fund laws.
1. Is it legal to have such exemptions?
2. What are my alternatives to proceed with this company with respect to my PF account with my current company?
3. Can I still contribute to the PF account and what will be the tax benefits on the same?
- Sumit Agarwal
Section 16 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, stipulates certain conditions that need to be satisfied for an establishment to be exempted from the operation of this Act.
So it may be possible that this company is availing of the exemption legally.
In respect of your PF account with your earlier employer, you could choose either of the following propositions:
1. Close the account and withdraw the balance lying to your credit. If your contributions are pertaining to five or more years of continuous period of employment, then there would be no tax impact on such withdrawal.
2. Transfer the balance PF from your old employer to your new employer. In this case, though, there would be no fresh contributions during your employment with the new employer.
How must I transfer my PF?
In such a situation, you could explore with your new employer if voluntary PF (only your contribution to this fund) is possible. If yes, then you could contribute and avail of the tax benefits on this contribution.
Got a question for Relax With Tax? Please write to us!
Regards
Sidheshwar
From India, Bangalore
31RelaxWithTax | June 27, 2006
You have a question about house rent allowance, medical allowance or even a general tax query.
Here's where we step in with our experts, Relax With Tax.
Got a question for Relax With Tax? Please write to us!
When I left my earlier company, I opted for the withdrawal of my provident fund money that was being maintained by the company in a trust.
The company deducted tax on withdrawal.
I was under the impression that Employees Provident Fund is tax-free.
Also, if I withdraw money from my Public Provident Fund account will that also be subject to tax?
- Shilpi Srivastava
We presume your earlier company maintained a recognised provident fund account, which is referred to as RPF.
On withdrawal from RPF at the time of termination of service, the accumulated balance is exempt from tax only if you have been in continuous service for a period of five years or more.
Service rendered to the previous employer is also to be included.
If the continuous service is less than five years due to reasons beyond your control (ill health, or discontinuance of employer's business), you still will be eligible for exemption.
If not, then you will be taxed on withdrawal of the accumulated balance from the RPF.
Withdrawals from the PPF account is based on defined eligibility criteria. Such withdrawals are not taxed.
PF vs PPF: What's the difference?
I have got an offer from a company who has filed for an exemption from Provident Fund laws.
1. Is it legal to have such exemptions?
2. What are my alternatives to proceed with this company with respect to my PF account with my current company?
3. Can I still contribute to the PF account and what will be the tax benefits on the same?
- Sumit Agarwal
Section 16 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, stipulates certain conditions that need to be satisfied for an establishment to be exempted from the operation of this Act.
So it may be possible that this company is availing of the exemption legally.
In respect of your PF account with your earlier employer, you could choose either of the following propositions:
1. Close the account and withdraw the balance lying to your credit. If your contributions are pertaining to five or more years of continuous period of employment, then there would be no tax impact on such withdrawal.
2. Transfer the balance PF from your old employer to your new employer. In this case, though, there would be no fresh contributions during your employment with the new employer.
How must I transfer my PF?
In such a situation, you could explore with your new employer if voluntary PF (only your contribution to this fund) is possible. If yes, then you could contribute and avail of the tax benefits on this contribution.
Got a question for Relax With Tax? Please write to us!
Regards
Sidheshwar
From India, Bangalore
Hi Sidheshwar,
Would appreciate if you resolve my query regarding PF.
If an employee has not completed 5 years of continuous service and wishes to withdraw his / her PF from a recognized PF account, will the PF be taxable?
If yes, at what rate?
Also, would like to know about the documentation formalities that need to be completed for transferring and withdrawing PF.
Thanks!
Deepti
From India, Pune
Would appreciate if you resolve my query regarding PF.
If an employee has not completed 5 years of continuous service and wishes to withdraw his / her PF from a recognized PF account, will the PF be taxable?
If yes, at what rate?
Also, would like to know about the documentation formalities that need to be completed for transferring and withdrawing PF.
Thanks!
Deepti
From India, Pune
Hi Deepti,
1) PF would not be taxed if it is withdrawn from Govt PF (unexempted organisation)
2) PF would be taxed if is is withdrawn from PF trust (exempted organisation) as per Income Tax regulation.
3) Form 13 is to be filled for transfer of fund from previous organisation to new one.
Regards
Sidheshwar
From India, Bangalore
1) PF would not be taxed if it is withdrawn from Govt PF (unexempted organisation)
2) PF would be taxed if is is withdrawn from PF trust (exempted organisation) as per Income Tax regulation.
3) Form 13 is to be filled for transfer of fund from previous organisation to new one.
Regards
Sidheshwar
From India, Bangalore
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.
Early PF withdrawal won’t be easy.pdf
Guide Lines for PF Withdrawal.doc