You can withdraw PF after two months of non-employment

The withdrawal of accumulated balance from a recognised PF is taxable in hands of employee if she has not rendered continuous services with the employer for five years


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I have been working with a company for the past 11 years. It was sold from one company to another 4 years ago and became a new entity. But I stayed with it. So now I have two provident fund (PF) accounts. If I now withdraw the PF from my current company, will I be taxed?

—Ranjan Khandia

The withdrawal of accumulated balance from a recognised PF is taxable in hands of employee if she has not rendered continuous services with the employer for five years.

While computing continuous service, the period of previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account maintained with the new employer.

You have rendered services for four years with the new company and have not transferred the accumulated PF balance maintained with the previous company. However, if you transfer the accumulated PF balance maintained with the previous company to the new employer and later on withdraw the PF balance maintained with new company as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the period of services rendered with previous company will also be included.

Accordingly, as the cumulative years of services with both employers shall be more than five years, the withdrawal will not trigger tax liability. Withdrawal of PF accumulation requires you to have a non-employment period of two months post leaving your job.

I have transferred some amount from my retirement money to my unmarried daughter’s (21) account and my sister’s account, who is partially handicapped and stays with me. Will these amounts be taxable in their hands. Also, do I have to make a gift deed for such transfers? Also, these monies have been turned into fixed deposits (FDs) in banks. How will this be taxed?

—Atul Doshi

Under section 56 of the Income-tax Act, 1961, amount above Rs.50,000 received without consideration during the financial year (FY) is taxable in the hands of recipient as “income from other sources”. However, an exemption is available if the money is received from a relative, which includes among others, the brother as well as father of an individual. Accordingly, the amount received by your sister and your daughter, who is a major, shall not be taxable. You can prepare a gift deed to substantiate the genuineness of these transactions. You can get the gift deed vetted from lawyer for legal perspective and confirm the stamp duty, as applicable.

Subsequent income from investment of the money shall be taxable in the hands of the recipient. Your daughter and sister will be liable to pay tax on interest earned from the FDs as per their applicable income slab rates.

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