After working for three-and-a-half years, I joined a brand new firm in early 2020. Previous to this, the contributions to my provident fund (PF) had been deposited with a personal belief of the earlier firm. After becoming a member of the brand new firm, I used to be unable to switch the funds accrued in my earlier PF account to the brand new one. So, I’ve utilized for withdrawal of funds from the earlier PF account. What are the tax implications?
– Yogesh Chandrasekaran
As per the info of your case, we perceive that you simply had contributed for 3.5 years in direction of the PF maintained by an accepted personal PF belief of your erstwhile employer as per the provisions of the Staff’ Provident Fund and Miscellaneous Provisions Act, 1952 (‘EPF Act’). Additional, you haven’t been in a position to switch the PF accrued stability to your PF account with the brand new employer that’s being maintained with Staff’ Provident Fund Group (EPFO).
As per the provisions of Rule 8 of Half A of Fourth Schedule to the Revenue-tax Act, 1961, the accrued stability due and changing into payable to an worker taking part in a recognised PF shall be excluded from the computation of his complete revenue—
(i) if he has rendered steady service together with his employer for a interval of 5 years or extra, or
(ii) if the service has been terminated by purpose of worker’s ill-health, or by contraction or discontinuance of the employer’s enterprise or different trigger past the management of the worker, or
(iii) if, on the cessation of employment, the worker obtains employment with some other employer, to the extent the accrued stability due and changing into payable is transferred to his particular person account in any recognised provident fund maintained by new employer; or
(iv) if your complete stability standing to the credit score of the worker is transferred to his NPS account.
Additionally, please notice that as per the provisions of the EPF scheme, submit cessation of employment, a member might withdraw the EPF accumulations from the fund if he isn’t employed at some other institution (to which the availability of EPF Act is relevant), within the previous two months from the date on which the applying for withdrawal is made. Nevertheless, since you’ve already began the brand new employment, you shall anyway not be eligible to withdraw the PF accumulation and it’s possible you’ll get the PF accumulations transferred below the brand new employer.
Since your interval of service and contribution with the erstwhile employer is lower than 5 years and your case doesn’t fall in any of the opposite prescribed eventualities below Rule 8 as defined above, the withdrawal of the accrued stability in your PF Belief shall be thought-about as taxable in your arms. Therefore, it’s advisable that the stability with the PF Belief is transferred to the brand new employer.
Please notice that there’s a course of for switch of funds from personal belief to the Regional Provident Fund Commissioner which must be evaluated.
Parizad Sirwalla is accomplice and head, international mobility providers, tax, KPMG in India.
Supply: Live Mint