Ask Mint Money | Some private PF trusts deduct tax at source when making payment

I worked with my previous employer, who had a private provident fund (PF), for 22 months. I have not transferred this old PF amount into my current employer’s PF account. Can I withdraw the old PF balance after completion of five years (in June 2012) without paying tax?

—Anup Gupta

If the employee has been in continuous employment for five years or more, then the withdrawal from such PF shall not be taxable, else it shall attract tax.

Further, the withdrawal would not be taxed if on the cessation of your employment with the previous employer, the accumulated balance in the PF account is transferred to the recognized PF account maintained with the new employer, which has not happened in your case. Since you were in employment with the previous employer for less than five years, you shall be liable to pay tax on the PF balance withdrawn. Please note that holding the PF account with the employer for five years shall not take away the tax incidence.

Accordingly, the total of employer’s contribution plus interest thereon, which was not taxed earlier (assuming the PF is recognized under the Income-tax Act), shall be taxable as profits in lieu of salary. Further, you shall be taxed on the amount of tax benefit claimed under section 80C of the Act on account of your contribution to the recognized PF, restricted to Rs1 lakh per financial year. Also, the interest on your own contribution shall be taxed as “income from other sources.”

Additionally, you need to evaluate the conditions/restriction prescribed in the Employee’s Provident Fund and Miscellaneous Provisions Act, 1952, for withdrawal of PF balance before the prescribed time period. Also, you need to examine the conditions/restrictions, if any specified in the private deed for withdrawal of the balance from the private fund maintained by the previous employer.

The private PF trust may deduct tax at source at the time of making the payment.

I have two houses—one in Bangalore where I live and one in Noida, which is rented out at Rs10,000 per month. I have loans on both. Can I show any of the two properties as self-occupied?

—Rajesh Singh

As the property at Bangalore is used for own residence, the same should be considered as self-occupied property. Accordingly, the annual value of this property should be considered as nil and deduction towards interest up to a maximum of Rs1.5 lakh per annum (assuming the property was acquired on or after 1 April 1999) should be availed.

Further, as the property at Noida has actually been let out, the rental income should be offered to tax. Against the rental income, you could claim a deduction for municipal taxes and a standard deduction of 30% of the annual value. Also, deduction towards housing loan interest could be availed.

Deduction is available on principal repayment under section 80C up to Rs1 lakh.

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