Facing EPF Withdrawal Taxation Woes? Need Urgent Advice on Navigating This Complex Situation

EPF Withdrawal Taxation Advice Needed

I need your advice on EPF withdrawal taxation. My company E is rumored to shut down, and I have resigned. I worked for 15 months and want to withdraw the PF balance from company E. However, I also transferred PF balances from the previous two companies, A & C, to this company E. Please refer to the details of the PF status and employment in chronological order:

Company Name | Company Left in | Time Worked | PF Status
A | 2011 | 42 months | Balance transferred to E
B | 2012 | 9 months | Trust managed PF. Amount withdrawn
C | 2013 | 11 months | Balance transferred to E
D | 2014 | 12 months | Trust managed PF. Amount not transferred or withdrawn
E (existing co.) | 2015 | 14 months | Amount not transferred or withdrawn

Taxation and Withdrawal Queries

- If I withdraw the EPF balance of company C, will I be taxed during the filing of the Income Tax return?
- Does "previous employers" mean "immediate previous employers"? Company A & C (whose PF balance was transferred to E) are not immediate previous employers, though the total years worked for A, C & E combined is more than 5 years. Am I fulfilling the 5-year norms?
- Can I withdraw only the EPS amount and keep the EPF balance intact?

Options if the Organization Shuts Down

If the organization shuts down, how can I withdraw/transfer the PF? What options are available to me?

Kindly advise urgently.

Thanks & Regards,
Shardul Jani.

Dear Shardul Jani,

If the total service in EPF is 5 years or more, you need not pay income tax. Otherwise, the EPFO itself deducts tax and pays the balance amount. Hence, club all EPF services together and get exempted from IT.

Abbas P.S

Understanding EPF and Company Shutdowns

Please understand, money in PF is held by the Government (EPFO) and not by companies. Companies can shut down or wind up. As long as the contribution of employees and the employer's share of PF is transferred to EPF, it does not matter whether the company disappears after that.

Withdrawals before 5 years will attract tax in normal circumstances. The procedure to withdraw EPF amounts is available even if the company winds up. Don't worry, the money is safe. All you need is your EPF account number and UAN (Universal Account Number).

Hello friends,

Thank you for helping me. I would like to request you to review the attached file and provide a final verdict on withdrawal taxation.

Warm Regards,
Shardul.

I suggest transferring the PF amount from D to E and then withdrawing from E. The total service is 67 months (excluding D), which is more than 5 years of membership in PF, and therefore, should not attract any income tax.

Dear Mr. Abbas,

With reference to your above reply, I am totally in agreement with your point on tax deduction if we leave the job before 5 years. However, as per my knowledge, if we submit Form 15G along with the PF form, then tax will not be deducted. Is this information correct?

Please let me know as I am supposed to withdraw my 4 years' PF from my last employer. Do I have to pay a 10% tax, or can I submit Form 15G?

Regards,
Renu

Understanding Form 15G for EPF Withdrawals

Form 15G is used to avoid tax deduction at the source. If Form 15G/H is submitted, EPF authorities will not deduct tax. A copy of Form 15G will be sent by EPF to your concerned income tax office. If the wrong Form 15G is submitted solely for tax avoidance, it can lead to problems with the IT department. Therefore, it is essential to submit Form 15G with care and responsibility.

The holding period for PF is five years in total and not just with the immediate previous employer. Submitting Form 15G for a PF accumulation of less than five years can help avoid TDS. However, it's crucial to remember that if your total income from all sources exceeds the tax limit, you will need to add the PF amount to calculate the tax payable.

If the 5-year rule means PF transferred from previous organizations, I have not transferred from companies B & D. This may be considered as a gap if the PF department means employers as "immediate previous employer" (they will come to know of the non-transfer from B & D), otherwise, if your reasoning is true, then withdrawal is non-taxable.

If you submit Form 15G, then TDS will not be deducted. However, you will have to pay tax while filing your IT return since you are withdrawing before completing 5 years.

Tax on PF Withdrawal

This tax on PF can be broken into three parts:

1. The total of the employer’s contribution plus interest, which was not taxed earlier, will be taxed under the head 'profits in lieu of salary'.
2. You will be taxed on the amount of tax benefit claimed for your contribution to EPF.
3. Interest received on your own contribution to EPF will be taxed as 'Income from other sources'.

Regards,
Renu

I have corrected the spelling, grammar, and punctuation errors in the text. I have also ensured proper paragraph formatting with a single line break between paragraphs. The original meaning and tone of the message remain unchanged.

Dear Shradul,

Here, continuous service means the service excluding the non-contributory period. Otherwise, some may include the non-contributory period as part of the service.

Abbas.P.S