Dormant PF account will earn interest till the holder attains retirement age

After 36 months have passed since the last active contribution in a PF account, it gets categorised as dormant account

I migrated to Australia on a permanent resident visa last month. I have a provident fund (PF) account in India which I have maintained for eight years. How long will my PF account earn interest and when would be the right time to withdraw the accumulated corpus?

—Bhanu Prakash

After 36 months have passed since the last active contribution in a PF account, it gets categorised as dormant account. However, the account continues to earn interest (the rule was amended in between for few years but was restored to its original status) till the account holder reaches retirement age.

Also, you should be aware that for the interest accrued post active contribution, the tax exemption will be limited to the accumulated balance due and payable to an employee up to the date of his continuation of service or end of his employment, which implies that the interest earned after leaving the employment will be considered as taxable.

I worked with a company for more than five years before making a switch. But I am unable to withdraw my PF as I joined a new company; so I’ll have to transfer it. But if I leave this company after a year and don’t have a job henceforth, will my PF withdrawal be taxable or tax free?

—Vishal Mane

As per the provisions of Income Tax Act, contribution to recognised provident fund will not attract any tax liability in the following cases: a) If the employee has rendered continuous service for a period of five years or more. For the purpose of calculating five-year time limit, services rendered with the previous employer is also included, and it is assumed that the PF account balance of the previous employee has been transferred to the current employer. Therefore, it will also include employment with two employers where each stint is for less than five years, but in total the continuous period of service exceeds five years. b) If the employee has been terminated because of certain reasons which are beyond his control (like ill health, discontinuation of the business by employer, or any other cause beyond the control of the employee). If an employee makes withdrawal before continuous service of five years for reason other than the cases given above, the withdrawal will be taxable in the hands of the employee.

You completed five years of service with one employer before you changed your employment. You have also transferred your PF. So even if you withdraw your PF corpus from your new employer after one year, the complete PF withdrawal would be tax free in your hands.

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

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