From "jeeni" : Dear All,Is there any amendment in the provisdent fund act or any notification by the government that if a person will Withdraw his Provident fund before the completion of 5 years, then 33% will be dedected in the form of TAX.I just want to clear it from my respected seniors.In my company which belonng to TATAS having our own Trust for this purpose are deducting on the Provident Fund if an employee will withdraw before 5 Years.Plz Reply with details.Yours FaithfullyRanjeet
8th December 2008 From India, New Delhi

Dear Ranjit,
I presume yours is an exempted establishment. I have not come across with special provisions of such establishments. I believe that rules of such establishments will be different and there may be provisions in the respective trust deed to this effect. I shall study the matter and get back to you very soon. Till then please bear with me.
Regards,
Madhu.T.K
10th December 2008 From India, Kannur
PF through a separate trust is permitted only when the establishment offers better facilities through the trust than that offered by the EPFO.These establishments are called exempted establishments. The PF of exempted companies will be regulated by the schemes framed in this respect by the respective establishment. Therefore, provisions relating to tax deduction @ 33% when an employee withdraws the fund before 5 years shall be available in the TATA's provident fund schemes only. There is no such provision in the Employees Provident Fund & Miscellaneous Provisions Act or Schems.
Regards,
Madhu.T.K
10th December 2008 From India, Kannur
Dear Ranjit,
As already pointed out, there is no such provision either in the EPF Act or EPF Schemes. For exempted establishments which are given permission to have separate PF Trust, the schemes will be made by the establishment only and in that scheme it should have been mentioned that 33% shall be deducted if any employee leaves before 5 years of service. There is no such provision in the Act and , therefore, this is not applicable to other establishments which are covered by EPF Act.
Regards,
Madhu.T.K
11th December 2008 From India, Kannur
Dear Ranjeet,

Your query needs some explaining. PF may or may not be taxable under certain conditions. Here is how it goes:

Employer's contribution to EPF is not considered as taxable salary subject to compliance of stipulated conditions. Employee contribution to EPF is considered as deduction under section 80C from the gross taxable income to determine the net taxable income.

PF withdrawal is not taxable only if a person has been in continuos service for 5 years. (Just for the sake of explaining, in your case if you have had PF balance from your previous employer then such balance should have been transferred from your previous employer to your current employer and the period of service of both employers would need to be aggregated to check if you have completed 5 years of continuous service).

The general perception that whatever is the balance with the Provident Fund is non taxable at the time of withdrawal. However , it is not entirely correct. There are circumstances when even the savings in provident fund (accumulated balance ) becomes taxable.


Section 10(12) of the I T Act exempts all payments from any provident fund set up by Central Government or any provident fund on which Provident Fund Act applies. This means , if you are employees of Central government or State Government or of any employer whose fund are managed by Provident Fund authorities , any payment from such provident fund is total exempt .

Wherever, employer maintains PF of the employees through a trust and gets recognition from Commissioner of Income Tax for such trust, the employee needs to be careful regarding the taxability of accumulated balance because the payments from such recognised PF is taxable in certain circumstances. Section 10(12) of the I T Act gives exemption to payment from recognised provident fund as under

(12) the accumulated balance due and becoming payable to an employee participating in a recognised PF, to the extent provided in rule 8 of Part A of the Fourth Schedule ;
Rule 8 of Part A of the Fourth Schedule of I T Act provides the circumstances under which the accumulated balance payable to an employee is exempt from tax. If employee fulfills any of following conditions, payment from recognised provident fund is tax free :
(i) if he has rendered continuous service with his employer for a period of five years or more, or (ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employees ill-health, or by the contraction or discontinuance of the employers business or other cause beyond the control of the employee, or
(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised PF maintained by such other employer.

Regards,

Rahul Kumar

11th December 2008 From India, New Delhi
Sir ,
I had worked for Perot Systems . TSI limited for 2.5 years. I was laid off from the company on 21st Feb, 2009. Last month I had applied for my PF withdrawal. Now I recieved 49K as my PF after 30% tax dedcution. since i was laid off from the company and never resigned, is it valid for the company to deduct my PF by such an heavy amount when my current year's salary is below the exemption limit.
Kindly reply
2nd April 2010 From India, Jammu
The above discussion pertains to 2008-2010 period. Now the Employees Provident Fund Organisation has taken a stand (though after repeated demands from the Income Tax department) that any PF withdrawal before 5 years of service should be made after deduction of tax at source. This will come around 36% with a lot of cess and charges. In respect of employees whose incomes are not subject to income tax deduction can get it without TDS by furnishing a declaration in 15G. Persons who do not give this declaration will get PF after deducting tax above mentioned. For a tax payer it will not make any difference because he can claim it back by filing IT returns. But I am afraid if the EPFO will generate form 16/16A and give it to us!! I have apprehension because it should come from a government department and the organisation from where the government is trying to take funds to run the government. Please note that the government had tried even to tax on PF withdrawals before 58 years of age making the choice of private employees inflexible.

Madhu.T.K
24th March 2016 From India, Kannur
Hii I am Rikka, I am working in an IT firm. At the time of interview i asked the company to pay me 40k in hand as my take home salary without any deductions like PF, ESIC. but now the company wants me to submit the tax savings investments receipts so that tax would not be deducted. I want to know if pf, esic would be included in my gross salary then how much can i be able to save from the tax. can anyone explain me clearly?
what are the tax saving investments and how much can we save from the pf, esic compliances?
1st April 2016 From India, Hyderabad
Having been employed on a salary of Rs 40000, you are not entitled to any ESI benefits. Moreover, from ESI contribution you will not get any income tax benefits also. If out of your 40000 salary, if the basic component is alone is more than 15000, then you are also excluded from PF contribution. Since the company has not given you PF, the question of tax benefits from PF will not arise also. Now you have to show the other tax saving investments from your side which may include Home Loan, Mediclaim, Post Office savings, Public Provident Fund, Life Policies etc. You can give the details to your company Accountant and he will guide you what all will qualify for tax exemption.
Madhu.T.K
2nd April 2016 From India, Kannur

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