I left my job in July after working at that company for 1 year and 2 months. I am not working at present. My monthly Provident Fund (PF) deduction was Rs1,200. What is the procedure to claim it? How much will the amount be and what will be the tax on it? Or, should I leave the money in the PF account?
PF withdrawal will be as per provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which requires you to have a non-employment period of 2 months after leaving your job. Specified application forms (forms 19 and 10C) have to be signed, filled and submitted to the employer. The employer has to attest these forms. You or the employer has to submit these to the PF authority, along with requisite documents (such as a cancelled cheque) for withdrawal of the accumulated PF and pension amount. You can withdraw the PF and pension amounts as per the provisions of the PF and pension schemes, respectively. If you keep your money in the PF account without any further contributions for more than 3 years, it will be classified as a dormant account and no interest will be paid subsequently.
The withdrawal of the accumulated balance from a recognised PF triggers tax implications if the employee has not rendered continuous services for 5 years or more to the employer. While computing the continuous service period, previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account of the new or current employer.
We have assumed that this was your first job. Accordingly, there is no transfer of accumulated PF balance from a previous employer. As the total period of service with the ex-employer was less than 5 years, withdrawal of accumulated PF balance shall be taxable in the financial year of receipt of PF accumulations.
As per the domestic tax law, the total of employer’s contribution and interest earned on it will be taxed as salary. Further, the tax benefit claimed under section 80C of the Income-tax Act, 1961, on your own contributions shall be taxed. Also, the interest on your own contribution shall be taxed as ‘Income from other sources’. The tax rate would depend upon your applicable income slab in each of the financial years during which the PF contributions were made. Further, the surcharge (as applicable) and education cess, shall be applicable for each year and will also be payable in addition to the basic income tax. Accordingly, since the withdrawal of PF will be taxed at special rates (related to the tax rates applicable in the years in which the initial contributions were made), you would be required to pay tax irrespective of the fact that your taxable income is below the basic income exemption limit applicable for the year of receipt of PF accumulations. However, you would be eligible to claim relief under section 89 of the Act.
Depending upon whether the PF account is maintained by your employer with the in-house PF trust or with a regional PF commissioner, taxes would be deducted at source at the time of payment of PF accumulations. You will be required to compute taxes as mentioned aforesaid and pay the balance taxes (after factoring the taxes deducted at source) on your own either through advance tax or self-assessment route. The PF accumulations received and taxes paid thereon, should be reported in the personal tax return.
If you continue to retain the accumulated old PF balance maintained with old employer and once you join another company, where PF is applicable, you can transfer the accumulated PF balance maintained with the aforesaid ex-employer to the PF account with new employer. In such situation, at the time of withdrawal of the accumulated PF balance maintained with new employer, while computing the period of continuous services with new employer, the period of services rendered with ex-employer will also be included. Accordingly, if the cumulative years of service exceeds 5 years, there will not be any tax implications on PF withdrawal.
Parizad Sirwalla is partner (tax), KPMG.
Queries and views at email@example.com.