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PF corpus is taxable if it is withdrawn before five years of continuous service

  • Your EPF will continue to earn interest, irrespective of the number of years you are employed for
  • If there is any change of job and the total PF balance is transferred to the new PF account maintained by the new employer, the PF is considered to be continuous service

I worked from June 2013 to May 2017 for a private firm after which I left my job for further education. Due to this, there was a break of two years and two months (as per my new joining) before any fresh contribution was made to my Employees’ Provident Fund (EPF) account. Now when I join and continue with the same PF account, will serving for 13 months complete the five-year criteria for earning interest? What will be my tax liability?

—Akshita

Your EPF will continue to earn interest, irrespective of the number of years you are employed for.

However, if EPF is withdrawn before the completion of five years of subscription, i.e., continuous service of five years, the proceeds would be taxable under the Income Tax Act and TDS (tax deduction at source) would be deducted by the PF authorities. If there is any change of job and the total PF balance is transferred to the new PF account maintained by the new employer, the PF is considered to be continuous service. But there should be no gap in contribution to PF to avail of the continuous service clause.

In your case, you have joined the new employer after a gap of two years and two months; so there is a gap in continuous service.

There are a few exceptions under which the period of five years of continuous service is exempted—such as when the service is terminated due to the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee. In such instances, the withdrawal amount is tax-exempt. But none of these exceptions are applicable in your case, resulting in your PF becoming taxable.

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

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