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10% TDS if taxable provident fund sum is more than `30,000

If PF is taxable, tax will be deducted at source at 10% if the taxable PF amount is more than `30,000 and provided PAN of the individual is available

I have been working with one employer for the past 10 years. The employer has businesses in various companies. I worked eight years in one company A) and two years (company B) in another. I had two provident fund (PF) accounts. If I withdraw from company B PF account, will I be taxed?

—Paramjit

An individual has to pay tax on the Employees’ Provident Fund (PF) accumulations withdrawal only if it has been withdrawn from a recognized PF account without rendering continuous service for five years or more with the employer. If on change of employing entity the accumulated PF balance was transferred to the new PF account, then the period of previous employment should also be considered as part of continuous service.

Since you worked with company A for more than five years, the PF withdrawal shall not be taxable in the financial year (FY) of withdrawal. But you have to disclose the PF amount in the personal income tax form.

We understand that you have been transferred to a separate legal entity of the same employer. Presuming that PF balance from company A has not been transferred to the PF account of company B, in this situation, since the legal entity per se is different and you had worked only for past two years with company B, the accumulated PF amount will be taxable in the FY of withdrawal.

The aggregate of employer’s contribution to PF and interest earned thereon is taxable as salary. Further, to the extent of the deduction claimed by you under Section 80C of the Income-tax Act, 1961, on your own contribution to the recognized PF shall be taxed as salary. Also, the interest earned on your own contribution to PF shall be taxed as “Income from other sources". The tax rate would depend upon your applicable income slab in each of the FY (s) during which the PF contributions were made. Surcharge and education cess shall apply.

You would be entitled to avail relief under section 89.

If the PF amount is taxable, tax will be deducted at source at 10% if the taxable PF amount is more than 30,000 and provided Permanent Account Number (PAN) of the individual is available. If PAN is not available, tax would be deducted at maximum marginal rate. We have presumed that both companies A and B have maintained PF with a private PF trust.

So, if the accumulated PF balance maintained with company A is transferred to that of company B upon change in legal entity of the same employer, and later on you withdraw the accumulated PF balance maintained with company B, the period of services rendered with company A could also be included while calculating continuous service. Since the cumulative years of services with companies A and B would be more than five years, withdrawal from company B PF will not trigger tax liability.

Withdrawal has to be as per PF provisions, which requires you to have a non-employment period of two months after leaving a job.

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