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I have worked for a private company between January 2018 to December 31 2019. I resigned from the job and applied for PF withdrawal of 75% in the month of August 2020. I haven't had any job in 2020. Are the PF remaining amount and further PF deposits would be liable for tax.

Gopikrishna Kothapalli

From a tax perspective, as per Section 10 (12) read with Rule 8 of Part A of Fourth Schedule of the Income-tax Act, 1961 (the Act), the accumulated PF balance due and payable to the employee that is balance to his credit on the date of cessation of his employment, is exempt from tax if he has rendered continuous service for a period of five years or more.

When there are multiple employers and the PF balances are transferred to the PF account with the most recent employer, the cumulative period of employment with all the employers is required to be seen for the purpose of evaluating whether the employee has rendered continuous service for a period of five years or more.

In this case, you had rendered service for 2 years with your previous employer. In case you join another establishment, transfer your PF balance from your previous employer to new employer’s PF account and further contribute for PF for 3 years or more, your cumulative period of employment shall be considered as five years or more and accordingly, the accumulated balance to the extent payable to you at the time of ceasing employment, shall be exempt from tax.

However, in case you do not join any other establishment, join another employer and render service for less than 3 years, or after joining do not transfer the PF balance from the previous employer to the new employer, the cumulative period shall be considered as less than 5 years and upon withdrawal, the same shall be chargeable to tax in accordance with Rule 9 of Part A of Fourth Schedule of the Act.

The PF advance received by you would also attract income tax if you do not render continuous service for 5 years or more.

Answered by Parizad Sirwalla, partner and head, global mobility services, tax, KPMG India. Send any queries and views at mintmoney@livemint.com

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