Home / Money / Personal Finance /  How will I be taxed on my EPF withdrawal?

I left my job after two years of service in an office and joined a new organization. Now, due to some issues at my current organization, I am unable to transfer my previous company’s  employee provident fund account (EPF)  to my current one. 

What part of my old EPF account will be taxable as there was no contribution for two years?

—Name withheld on request

 

As per the facts of your case, we understand that you had contributed for two years towards Employee Provident Fund (‘EPF’) maintained by your erstwhile employer with Employees’ Provident Fund Organization (‘EPFO’) as per the provisions of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act). Further, you have not been able to transfer the PF accumulated balance to your current PF account with the new employer (maintained with the EPFO).

From a taxability perspective, at the time of withdrawal of the PF accumulations, as per the provisions of Rule 8 of Part A of Fourth Schedule to the Income-tax Act, 1961, accumulated balance due and becoming payable to an employee participating in a recognized provident fund shall be excluded from the computation of his total income:

(i) If he has rendered continuous service with his employer for a period of five years or more, or

(ii) If the service has been terminated by reason of employee’s ill-health, or by contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, or

(iii) If, on the cessation of employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable is transferred to his individual account in any recognized provident fund maintained by new employer; or

(iv) if the entire balance standing to the credit of the employee is transferred to his NPS account.

If the accumulated EPF balance includes any EPF balance transferred from the former employer, in computing the period of continuous service, the service under the former employer is also included.

Since your period of service and contribution with the erstwhile employer is less than five years and you have also not transferred the EPF accumulated balance to your current PF account, your case does not fall in any of the prescribed scenarios under Rule 8 as explained above.

Thus, the withdrawal of accumulated balance in EPF account with your previous employer (when permitted under the provident fund  laws), shall be considered as taxable in your hands, which would include the following;

a. Employer contribution towards EPF;

b. Employee contribution towards EPF to the extent deduction is claimed while computing the total income for respective years of contribution

c. Interest on employer and employee contribution towards EPF

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

(If you have a personal finance query, write to us at mintmoney@livemint.com to get it answered by experts.)

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