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When is fund withdrawn from EPF taxable?

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  • As per the provisions of Rule 8 of Part A of Fourth Schedule to the Income-tax (I-T) Act, 1961, accumulated balance due and becoming payable to an employee participating in a recognised provident fund shall be excluded from the computation of his total income

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I worked at a private firm from June 2017 to December 2018 , before joining a public sector bank. It has been three years now, but I have been unable to transfer my provident fund (PF)  accumulation to the new employer’s PF account. I   want to withdraw my funds from EPFO, but will this be taxable? 

                                — Japneet Kaur

 

As per the provisions of Rule 8 of Part A of Fourth Schedule to the Income-tax (I-T) Act, 1961, accumulated balance due and becoming payable to an employee participating in a recognised 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 recognised 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

We understand that you intend to withdraw the accumulated balance of the PF contribution with EPFO, in respect of your previous employment with a private firm. Since your period of service with the private firm is less than five years and your case does not fall in any of the other prescribed scenarios under Rule 8 as explained above, thus the withdrawal of the accumulated balance payable shall be considered as taxable.

 

I had purchased shares of Neo Corporation International Ltd for 12.5 lakh in  FY10-11. The company has now gone into liquidation. My holding, as per my demat account, is shown at a price of 1.52. Thus, I have incurred long-term capital loss (LTCL) of more than 12 lakh.  Can I claim LTCL in FY21-22  and what is the procedure for the same?

—  Surender Kumar Gupta

 

As per the provisions of the I-T Act, any profits or gains (including loss, if any) arising from the transfer of capital assets shall be chargeable to income tax under the head ‘capital gain’ and shall be deemed to be the income of the FY in which such transfer took place.

Based on the limited facts available, we understand that you currently hold shares in your demat account and the same has not yet been cancelled/surrendered to the company on account of liquidation.

You are not eligible to claim any set-off of LTCL in FY21-22 as there was no transfer of the capital asset during FY21-22. The same may be allowed as an LTCL (since the shares are held for more than 24 months) in the year in which the shares are cancelled/ surrendered. Such loss shall be required to be computed as per provisions of section 112 of the Act and reported in the return of income under the capital gains schedule.

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

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