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Business News/ Money / Calculators/  PF withdrawal is taxed at slab rate plus surcharge and cess
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PF withdrawal is taxed at slab rate plus surcharge and cess

Relief under section 89 shall be available as applicable

Pradeep Gaur/MintPremium
Pradeep Gaur/Mint

I have been working in a company for the past three years and now want to leave my job. If I withdraw my provident fund (PF), how much tax will be deducted? If I withdraw it after five years without taking up another job, will the deduction be applicable?

—S. Saxena

The withdrawal of the accumulated balance from a recognized PF will be taxable if the employee has not rendered continuous service for five years or more. While computing continuous service of five years, the period of 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 assume that your job with the company is your first job. As the total years of services with the company is less than five years, withdrawal of accumulated PF balance shall be taxed in the fiscal of withdrawal.

The total of employer’s contribution plus interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C on account of your own contribution to the recognized PF 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 fiscals during which the PF contributions were made. Further, the surcharge (as applicable) and education cess shall be applicable for each of the fiscals.

Relief under section 89 shall be available as applicable.

If the employer maintains a private PF trust, the tax may be deducted at source. However, if the PF balance is maintained through the regional provident fund commissioner, you may have to report the income yourself and pay taxes accordingly.

As you had rendered continuous service for less than five years, even if you hold the PF balance with the employer for more than five years, this will still trigger the tax implications in your hands.

In future, if you take up a new job and transfer the accumulated PF balance maintained with the company to the PF account maintained with the new company and then withdraw the accumulated PF balance maintained with new company, while computing the period of continuous services with the new company, the period of services rendered with the earlier company will also be included.

If the cumulative years of services with both the companies are more than five years, there will not be any tax implications on PF withdrawal.

Further, the withdrawal of the PF will be according to the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which requires you to have a cooling period of two months.

Queries and views at mintmoney@livemint.com

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Published: 28 May 2014, 07:14 PM IST
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