PremiumAs per the provisions of the Income-tax Act, 1961, the accumulated balance due and becoming payable to an employee participating in a recognised PF, is exempt in the hands of the employee to the extent provided in rule 8.
After working for around four-and-a-half years with a company, I quit my job in December 2021. I found a new job in mid-February 2022 and also got my employees’ provident fund (EPF) transferred to the new firm. But, will this gap of one-and-a-half months in service in any affect my eligibility to withdraw funds from EPF account?
—Ankur Arora
Based on the limited information available, we understand that after contributing to recognized provident fund (PF) with the Employees Provident Fund Organisation (EPFO) for 4.5 years through your former employer, you have transferred the accumulated balance to the new PF account with the current employer.
As per the provisions of the Income-tax Act, 1961, the accumulated balance due and becoming payable to an employee participating in a recognised PF, is exempt in the hands of the employee to the extent provided in rule 8.
Further, as per this rule, the accumulated balance due and becoming payable from a recognised PF shall be excluded from the computation of total income of employee—
(i) If he has rendered continuous service with his employer for a period of five years or more, or
(ii) If the service has been terminated by reason of employee’s ill-health, or by contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, or
(iii) If, on the cessation of employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable is transferred to his individual account in any recognised PF maintained by new employer; or
(iv) If the entire balance standing to the credit of the employee is transferred to his National Pension System (NPS) account
It is to be noted that the accumulated balance due to an employee means the balance (including accretions thereon) standing to the credit of an employee on the day of cessation of his employment.
In such a case, exemption is available only in respect of accumulated balance (as on the last day of your previous employment) which are transferred to the recognized PF account maintained under the new employer. Any interest income received post cessation of your previous employment till transfer to the PF account with new employer would be considered as taxable income.
Hence, for the gap of 1.5 months in employment, interest income for such period shall be taxable in your hands. Except for interest income for such period, if your cumulative period of employment (i.e. the contribution period to a recognized PF) is more than 5 years at the time of withdrawal (including advance), you will be eligible for exemption available under the provisions of the income tax Act and would be eligible to withdraw the PF accumulations for the specified purposes (as applicable).
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India
