From a tax perspective the accumulated PF balance due and payable to the employee i.e., 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
I worked in a company between 17 February 2016 and 28 December 2018. The company’s captive trust managed the employee provident fund (EPF) contributions. For some reason, the money was not transferred to my new employer. I have been jobless for the past 6 months now due to covid. Can I withdraw the PF amount from my previous company? What TDS and taxation do I expect considering that on 17 February 2021 I completed five years as a member of that PF trust though the service was for two years only. Please advise.
The PF balance with the your previous employer’s trust can be withdrawn subject to the provisions of the specific PF Trust rules of your former employer.
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 i.e., 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. In your case, as you have not rendered service for 5 years with your previous employer and the PF balance accumulated with your former employer had also not been transferred to your PF account with the subsequent employer, the PF balance upon withdrawal shall be chargeable to tax in accordance with Rule 9 of Part A of Fourth Schedule of the Act. Further, holding PF trust membership for more than 5 years would not change tax implications. Also, please note that TDS may be withheld at source by the PF Trust of your former employer from the amount paid to you.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at firstname.lastname@example.org