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Home >Money >Q&a >EPF attains tax-free status after five years of continuous service

I had worked for two different companies prior to my current job. The Employees’ Provident Fund (EPF) I got, I transferred it from my first company to the second one and then to the third company without closing the account and my overall experience is over 23 years. In the previous company, I worked for 13 years and in the present company, I have completed four years. I would like to do a partial withdrawal of EPF amount for my daughter’s education. Would it be taxable if I partially withdraw some amount from EPF as of today?

—Philip

If your period of continuous service is five years and more, then the balance in your PF corpus attains tax-free status and is not taxable. For the purpose of calculating the said period of five years, the previous EPF contribution is also to be included. The previous contribution (and it could be multiple number of EPF transfers) will also be included for the purpose of calculating the five years period. In your case, the total period of service is 23 years, including the current employment where you have been employed for more than four years.

As the total period of service is considered, which is more than the five years period, there will be no tax liability or tax deducted at source (TDS).

How does one define “continuous" service in EPF? What if there is a gap of seven days between job A and job B? Also, is non-taxable withdrawal limited for specific purposes?

—Nitin

Continuous service for EPF is defined as employment for a period of five years with one or more employers. In case there is a break between employment but it does not impact the active contribution to PF, then it will be construed as continuous period of service. This means if there is a gap of one month between the first and second employment and the accumulated PF is transferred to the new employer, the one month will not be considered as a break in employment and will be counted as continuous period of service for the purpose of taxation.

In case of withdrawal, the non-taxable limit is applicable only after a minimum of five years of service, except in the case of medicals.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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