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Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

No tax on provident fund (PF) after five years of service

In your case, as the cumulative period of employment exceeds five years, the accumulated balance payable to you at the time of ceasing your employment with the last employer, shall be exempt from tax

Suppose I transfer my Employees’ Provident Fund (EPF) balance from employer A to employer B after completing five years of service with employer A. I resign from the services of employer B before the completion of five years of continuous service. Now if I decide to withdraw the EPF, will the entire EPF, including the amount transferred earlier from employer A, become taxable ?

—Mahendra M.

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 accumulated PF balance due and payable to you, that is, balance to your credit on the date of cessation of your employment, is exempt from tax if you have rendered continuous service for a period of five years or more.

Where there are multiple employers and the accumulated PF balances, and the previous balances are transferred to the PF account with the last employer, the cumulative period of employment with all the employers are required to be considered for the purpose of evaluating whether the employee has rendered continuous service for a period of five years or more.

In your case, as the cumulative period of employment exceeds five years, the accumulated balance payable to you at the time of ceasing your employment with the last employer, shall be exempt from tax. However, any accretions to the balance thereafter would be taxable in your hands, as upheld in recent judicial precedents.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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