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 with stipulated conditions. Employee contribution to EPF is considered as a 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 continuous service for 5 years. (Just for the sake of explaining, in your case, if you have had a 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 is that whatever 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 the provident fund (accumulated balance) become taxable.
Section 10(12) of the IT Act exempts all payments from any provident fund set up by the Central Government or any provident fund on which the Provident Fund Act applies. This means if you are an employee of the Central government, State Government, or of any employer whose funds are managed by Provident Fund authorities, any payment from such a provident fund is totally exempt.
Wherever an employer maintains the PF of the employees through a trust and gets recognition from the Commissioner of Income Tax for such a trust, the employee needs to be careful regarding the taxability of the accumulated balance because the payments from such a recognized PF are taxable in certain circumstances. Section 10(12) of the IT Act gives an exemption to payment from a recognized provident fund as under:
(12) the accumulated balance due and becoming payable to an employee participating in a recognized 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 the IT Act provides the circumstances under which the accumulated balance payable to an employee is exempt from tax. If an employee fulfills any of the following conditions, payment from the recognized 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 employee's ill-health, or by the contraction or discontinuance of the employer's 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 recognized PF maintained by such other employer.
Regards,
Rahul Kumar