• Income tax rule on PF withdrawal

Dear Sir,

I worked in a IT company (Symphony Services) from MARCH 2007 to JUNE 2008. Then I took the job in some different company & worked there till MAY 2013. I did not transfer the PF Amount of Symphony Services in the PF Account of new company. 

In MAY 2013 I left my IT Job & remained unemployed till AUGUST 2014. In JUNE 2013 I withdrew the PF amount of Symphony Services. 

I read on internet that if PF is withdrawn after 5 years (from the date of joining) then it is exempted. From joining date (MARCH 2007) to the date of withdrawal (JUNE 2013) the total time duration is 6 years & 3 months.

Could you please let me know if I need to consider this amount while filing the IT return for FY 2013-14 (AY 2014-15). I mean is there any tax liability on this amount?



Please guide.

Regards
Ashish Shrivastava
Asked 9 months ago in Taxation from Bhopal, Madhya Pradesh
Religion: None
withdrawal of EPF corpus after 5 years of continuous service is fully tax exempt. 

2) Rule 8 of Part A of the Fourth Schedule of I T Act provides the circumstances under which withdrawal by an employee is exempt from tax . If employee fulfills any of following conditions, payment from recognized provident fund is tax free :

A member of the PF scheme shall be entitled to withdraw the PF amount standing to his credit on retirement from service after attainment of 58 years
If the employee has rendered continuous service with the employer(s) for five years or more. If the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period.
If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt.
Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer.
Ajay Sethi
Advocate, Mumbai
23211 Answers
1218 Consultations
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The PF is eligible for exemption from tax only under the circumstances mentioned below:

1. If the employee has rendered continuous service with the employer for five years or more. Again, if the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period.

2. If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt.

3. Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer.
Ashish Davessar
Advocate, Jaipur
18102 Answers
448 Consultations
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You have rightly read and become aware that the tax liability is for less than five years only. The tax benefits of EPF is:
Employer’s contribution  to your EPF account is exempt from tax. This exemption is subject to 12% of your basic salary plus DA.
The interest on employer’s contribution is also exempt from tax.
The employee contribution toward EPF is also eligible for tax deduction under section 80C.
The interest on the employee’s contribution is also tax exempt.

Tax Benefit Is Subject To Minimum Service Requirement
Any investment which gives tax deduction comes with a lock-in period. Except the ELSS all other tax saving investments have minimum lock in period of 5 years. So is the case with EPF. The investment in EPF may have given you the tax saving of upto 30%, it depends upon the tax slab you have been in all previous years.

Therefore, If you do not complete the minimum investment requirement of 5 years, the above tax exemption and deduction availed by you would be void. You must pay the income tax, you have saved because of the EPF contribution. It means, you need to file revised income tax return of all the previous years.
T Kalaiselvan
Advocate, Vellore
14006 Answers
127 Consultations
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