Full PF withdrawal before age of 58 difficult in most cases
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I have been working with a company for four years. I plan to quit and withdraw my provident fund (PF) amount. What will be the tax implication?
As per the Budget announcement, it was proposed that taxability on withdrawal of PF would trigger only in respect of the contributions made by the employee on or after 1 April 2016. However, based on the announcements made by the finance minister on 8 March, the above proposal to levy tax on PF withdrawal has been withdrawn.
Therefore, applying the earlier existing tax provision, withdrawal of accumulated PF balance will trigger tax liability if an employee does not render continuous service for five years or more. While determining such period, the time for which service was rendered to the previous employer(s) should also be added if cumulative PF balance with the old employer has been transferred to the account of the new employer.
We have assumed that your current job is your first job or you have not transferred the accumulated PF balance maintained with previous employer to the PF account of the current employer.
As the total period of service is less than five years (i.e., 4 years), tax will be levied on the accumulated PF balance withdrawn in the financial year (FY) of receipt. The aggregate of the employer’s contribution to PF and interest earned thereon will be taxable as salary. Tax deduction claimed under section 80C of the income-tax Act on your own contribution to the recognized PF shall also be taxed as salary. Interest earned on your own contribution shall be taxed as ‘Income from other sources’. Tax rate would depend on your applicable income tax slab in each of the FYs during which the contributions were made. Further, if the total income exceeds Rs.1 crore, surcharge at 12% (this is proposed to be increased to 15%) will be levied. Also, education cess shall be applicable for each of the FYs and will be payable in addition to the basic income tax and surcharge, if any. You can avail relief under section 89.
If you take up a new job and transfer the accumulated PF balance maintained with the current company to the new employer and later on withdraw the balance maintained with the new employer as per PF provisions, while computing the period of continuous service with the new employer, the period of service rendered with the present company will be included.
Further, as per the recent amendment in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, effective from 10 February 2016, if an individual ceases employment and remains unemployed for two months after leaving the job, she can now only apply for the withdrawal of the employee’s share of contribution and interest earned thereon. The balance amount (employer’s contribution and interest thereon) can be withdrawn as per the new PF provisions, which is at the age of 58 years (subject to exceptions).
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