Got the following question in an email which Gurpreet responded to.
I have changed job and new employer has opened new PF account. I have a choice of withdrawing old PF amt or transferring to new.
If I withdraw PF, will it be treated as taxable income? If yes, can I save tax by investing partially in any government schemes / bonds?
Here is the response.
PF withdrawal is taxable if a person has worked in the company for less than 5 years. Tax cannot be saved even by investing in any govt schemes / bonds. It just gets added to income from salaries, and then the taxability will depend upon the Gross Income of the assessee.
| Head | Statutory PF | Recognized PF | UnRecognised PF |
| Employers contribution to PF | Exempt from tax | Exempt up to 12% of salary (Basic +DA) | Exempt from tax |
| Deduction under sec 80C | Available | Available | Not available |
| Interest credited on PF account | Exempt from tax | Exempt up to 9.5% | Exempt from tax |
| Lump sum payment received at the time of retirement or termination of service | Exempt from tax | Exempt from tax: | Only employees share of contribution is exempt |
| a. If the employee has worked for at least 5 years with the employer | |||
| b. If the service is terminated on account of ill-health or by contraction or discontinuance of the employer’s business or any other reason beyond control of employee | |||
| c. If the employee transfers the balance in his PF to his new PF a/c maintained by his new employer |
Any thoughts on this – has anyone done this?
I have worked at a employer, a bank from 2009 to 2010 and had a PF account. Post that I have changed my job to another employer say another bank and opened another PF account. However I havent transfered the PF from the old account to new.
Now, I want to buy a real estate property and need some cash for the same. My qustions are:
1. Can I withdraw the old PF balance ?
2. Will I be taxed for the same? if yes whats the procedure for tax deduction… Will EPFO directly deduct tax @ 30% or it will upto me to file in my returns
3. Pursuant to question 2… Can my withdrawal be tax free since I am buying a house?
4. Can I withdraw my current PF balance to buy a house?
Thanks in advance.
Hi Gurpreet
Thanks for posting a very informative article about PF withdrawal. I have couple of questions regarding PF withdrawal.
* I worked in company A for 3 years and joined another company. I have applied for PF transfer which never happened. I rejoined company A after 1 year and worked for about 4 years. I would like to know if PF withdrawal is taxable in this case, if I apply for it now?
* Can you clarify if pension amount is also withdrawable (premature)? I understand that pension is also a component of PF amount.
Can you also clarify if PF withdrawal should be strictly applied only when the candidate is no longer employed?
Hi Jagadeesh,
I think the PF should be taxable since u didn’t work for continuous 5 yrs….u first worked for 3 yrs and 1 yr with some other co and then rejoined for 4 yrs….u didn’t serve continous 5 yrs, hence it should be taxable.
Can u pls clarify abt pension component, as I’m not sure if Co’s deduct something in regards to pension. Let me know if I’m missing something.
Regards,
Gurpreet
Hi Gurpreet
Can you clarify PF withdrawal should be strictly applied only when the candidate is no longer employed?
Hi Nitin,
No probs abt asking the ques….Can u pls share that how ur so sure that tax will not be deducted on the PF withdrawn. Ur PF money will be a part of ur Salary and will b taxed accordingly.
Hope this answer is fine, else let me know if not..
Thanks,
Gurpreet
Hi, I meant it will not be deducted ‘automatically'(at TDS i guess!). Please correct Me, I have got my PF money but tax was not deducted… so do i have to pay the tax seperately for the withdrawn PF? or it was not deducted because my net income for the financial year was not taxable? (my net income was only around 1,50,000)
Nitin,
Firstly, apologies for a late response.
I’m not sure abt this answer but I think looks quite logical:
TDS will be deducted depending upon what salary an individual was drawing. in ur case since u didn’t cross the exemption limit the PF guys didn’t deduct TDS.
Regards,
Gurpreet
But i guess I still have to pay 39% tax for the PF amount I got right?
I’m not sure if 39% i’ve mentioned is correct! and my net income goes beyond the exemption limit if i include PF amount!
Forgive me for asking a very trivial question but this is the first time i will be filing tax. I have withdrawn my PF before completing 5 years in profession, the tax on PF will not be deducted automatically right so how and where am i supposed to highlight the PF money and pay tax for the same?
Hi Gurpreet,
I am planning to withdraw my PF amount which is contributed by my previous organization, as i have surfing alot on net regarding this issue but there is no satisfying answer, some people says it is taxable if i am not served 5 years on that organization, some people says if PF amount is greater that 1 lakh then it is taxable otherwise not, some people expalins about Recognized PF n UnRecognized PF….
so can you please tell me the satisfying answer that it is taxable or not…??
Is there any change in this rule from 2010 -2011…??
http://employment.feedfury.com/content/47776354-providend-fund-withdrawal-taxable-premature-withdrawal-of-pf-taxable.html
Hi Saurabh,
I hope you’ve gone through the above article and the comments. Just to re-iterate, PF withdrawal is taxable if we resign from the company before serving 5 years. Amount of PF is not a consideration i.e. there is no limit of Rs.1,00,000. Even Re 1 will be taxable if we resign prior to 5 years.
Thanks & Regards,
Gurpreet
I had joined company A in Sept 2005 and resigned on 31 st dec 2008. They had their trust and PF amount was retained till 21 April 2011.
I joined another company B on 5 th Jan 2009 who are maintaining PF with Maharashtra State RPF and they had opened a different PF account with state RPF and I am still continuing to deposit PF amount with them even till date.
Now my services is transfered to UP in company B and they are maintaining PF in trust in UP from March 2011 onwards
Company A has deducted the TDS on PF withdrawl from trust on 21 st April 2011 (though amount was reatined with them for more than 5 years) and deposited with authority.
I had withdrawn PF from comany A to buy a property.
I wish to withdraw my fund from Maharastra RPF also.
What can be done to claim refund of tax for withdrawl, can I transfer the withdrawl of comany A to Maharashtra state RPF and then withdraw total amount to claim refund of tax??
Or can I claim exemption on basis of documents of continuity of PF for 5 years(Comapny and Comapny B in Maharashtra) and tax deducted was erroniously
What should be done to avoid tax dedcution from withdrawl of Maharashtra RPF?
Please advise
Hi Rajesh,
The PF withdrawal is taxable when the period of service to a company is less than 5 years. It is not abt how long or latter we withdraw PF, rather in order to claim PF withdrawal as exempt from tax, our tenure of working with the company should be at least 5 years.
In ur case Co A correctly deducted TDS from PF withdrawal.
For co B, if ur tenure has become more than 5 yrs then only ur PF withdrawal will b exempt, otherwise it will be taxable. It does not matter whether PF a/c was relocated.
I hope it answeres ur ques. If not, plz let me know
Thanks,
Gurpreet
Hello, I moved from one Mumbai company to another in 2008. I requested my old PF be transferred to new account my new company created. I inquired in 2009 again at EPF office to know they have no track of application.
I submitted again new application in 2009; this time i kept a xerox of it with a received stamp from EPF office. Again in 2010 I checked to find out they have no clue of the application or it’s status. When I showed them the xerox, he told that there is no response from Mumbai EPF office.
Suggestion from you all:
1. Is there any way to fast track the transfer process?
1. Would you all recommend I withdraw my old EPF amount and invest it in NPS or KVS? (since EPF office would stop adding 8 or 8.5% interest to it now)
2. If I withdraw it, would it be taxable since I has worked in Mumbai company for 3 years and it has been already 3 more years after I left it.
Many thanks.
I have left my company after 4.11yrs of service. I have opted for a PF withdrawal and can you please tell me if the total amount of PF is taxable or only the employee contribution of it is taxable??
Hi,
I left my first company after 3.3 yrs.Opted for PF transfer in next company but due to some problem it cannot be transferred.
Now, i want to withdraw PF of my first company & my PF account is almost Five years .
Is now PF withdrawn would be taxable.
Thanks
Shweta
Thanks alot – your answer solved all my problems after several days sturgnglig
I worked with my previous employer for around 4 Years.
1. Can I withdraw whole accumulated PF from previous employer for a under construction house?
2. Will it be taxable?
Have confusion abt PF withdrawal….have resigned before completion of 5 years…..few months was remaning……but if i withdraw the PF after completion of 5 yrs. will it be any deduction on pf amt or i will be getting it complete amt.
Thanks all for ur comments.
I have the same doubt as Kapil have.
Withdrawal amount is directly credited to ur account and now it is up to us that we will pay the tax for this amount or not…
I dont think so that Tax deducted at source and rest of amount will be credited to link account.
I am still confused… do post your comments……..
Hello,
I have worked in my previous company for 3.6 years. I have good amount of PF and I have withdraw it.
Now question is should it be taxable?
if yes then how much tax I need to pay? and How?
Please advise.
Thanks,
Keval
Keval,
PF will be taxable on such withdrawal.
Tax will be deducted at source itself, you don;t have to worry abt that….the authorities will do the needful
thanks,
gurpreet
Gurpreet,
If tax is deducted at source itself in the case of PF withdrawal then how do we show the amount which we get as part of this withdrawal in our IT returns ..there again we will have to show it as other income which becomes taxable again…
And if the authorities deduct tax at source then based on what slab they will deduct?
How will they know which slab a particular employee will fall in?
What I believe is we add it in taxable income and then see which slab we fall in according to total taxable income and then pay tax on the corresponding slab….
Pls guide….
Kapil,
for withdrawing our PPF, there is no specific tax rate defined in the IT tax i.e TDS rate. When one applies for withdrawing PPF to his previous company, the company may deduct TDS on the higher rate or could take the last drawn salary as base.
I’m not too sure about this as this is a very practical example and a person employed in payroll dept will be the one who can answer this query. But, my personal opionion is that the companies will deduct TDS at the higher rate on the safer side, and the assessee can claim excess TDS as refund in his IT return.
The assessee will show gross amount (Amount received in hand + TDS deducted) under the head “Salaries” and then compute tax. Whatever the tax liability is, the deducted TDS will reduce the tax liability, and balance tax will be refundable/payable.
I hope this answeres ur query, if not, pls do let me know.
thanks,
gurpreet
Gurpreet,
I got your point but still have further query…
In my case I got the amount from the EPFO directly in my bank account..(And I believe it is the same for everyone)..
And the role of my previous firm was just to confirm the documents received from me for the withdrawal and forward them to EPFO..
So in this case how the firm will deduct the tax…
And if they deduct they should have let me known that TDS is already deducted….
Right now my case is I know only the amount I received in my account…Not the TDS if any…..
Kapil,
You’ll hv to ask ur company to provide u a certificate for the same or Form 16, as otherwise indeed it is very difficult to say that how much TDS was deducted or any TDS was deducted was not…
regards,
gurpreet
Hi, I recently withdrawn my PF after resigning from service before 5 yrs. I want to know, does EPFO deduct TDS before settling the amount or i need to show while filling income tax returns, and if need to show how much portion of PF will be shown under taxable income?
Thanks and regards,
Gitesh
Good Info… BUT what about Voluntary Contribution?
CONTRIBUTION TO RECOGNISED PROVIDENT FUND(VOLUNTARY)( U/S 80C )
Kindly guide on same too…
chirag
Chirag,
Please check the following link. I think it covers most of the aspects of the RPF. If you still need some more clarification, please DO let me know.
thanks,
gurpreet
http://www.bajajcapital.com/gss/ppf.html
Dear Gurpreet,
thanks for the respond…
BUT i think there is some misunderstanding… i am not asking for PPF part, i am asking for Voluntary Contribution in the co.’s PF.
let me explain it,
by default 12.33% of basic is deducted as a PF from the salary of an employee and same amount will also be added by the employer and will be credited to employee’s PF account.
now in addition of above am employee is also contributing some 10% of his salary in the PF and for this employer don’t have to add any counter part, but employee will get same interest which he will get in his official PF deduction.
now the question is how to distinguished the interest of both kind of contribution? and whether any tax is applicable on this contributed PF which is additional from default 12.33% of basic of salary?
Chirag,
Employee’s contribution is considered for tax deduction. So, if an employee is contribution 20% of his salary towards PF, then the entire 20% will be considered as an investment, and the employee can claim the same u/s 80C.
As regards employer’s contribution, it is Exempt from tax upto 12% only. If a employer is also contributing 20% then the employee will have to pay tax on 8% contribution made by employer.
Also, the PF deduction is 12% and not 12.33% .
thanks,
gurpreet
Thank YOU Very Very Much for all the answers and also putting efforts to get additional info…
just gr8!
What are Statutory PF, Recognized PF and UnRecognised PF?
I worked for 3 years in a Central Govt Organization. If I choose to withdraw PF, will it be taxable?
According to my understanding, it should not be taxable because we used to pay tax on PF amount as a part of our yearly income.
Avneep,
Are you sure that you paid Tax on your PF deductions. Can you please confirm that. As PF is deducted from our salary and becomes a part of our investment. And tax cannot be deducted/charged on such investment. Please let me know, if I’m missing something.
thanks,
gurpreet
Thanks for answering these questions Gurpreet!
Hi Gurpreet,
As per govt rule, PF is a part of our yearly 1L saving. So assumed not taxable.
But in other way it is taxable if somebody PF contribution is more than 1L.
Actually we r paying tax on it already.
Total PF contribution is always sum of Employ + Employer contribution = Y. This amount Y is considered as saving under section 80C.
in another way we can say if a X person invest 1L in Tax saving Funds then Y amount will be completely taxable.
So we had already paid tax on PF. It should not be deducted again on withdraw.
I am not sure about Interest part. May be it is taxable. please provide your valuable comments.
Reg
Avneep
Avneep,
firstly, apologies for the late response, as I was busy on personal front.
Secondly, only Employee’s contribution to PF is considered for Tax deduction.
coming to ur point that PF is taxable. It is not, as the limit is defined for investment in PF. Assume a situation in which no limit is defined : A person earns Rs. 5 lacs annually. If he invests more than Rs 1 lac in PF or any other investment then he’s not left with much money to sustain his daily chores, e.g. fooding, electricity, telephone, transport etc. The point here is the person should invest for future and is also left with enough money after such investment to sustain his life style.
Regarding interest, it is already covered in the above table.
I hope this clarifies some doubts. Let me know, if not
Thanks,
gurpreet
Hi Gurpreet,
Thanks for your reply.
1> In Central Govt, Employee + employer contribution in PF is considered for Tax deduction. You are right, when we talk about privet sector, where only Employee’s contribution to PF is considered for Tax deduction 🙁
2> I am not convinced from your answer. we must be more logical. Question is “whether Tax is already deducted or not? ”
If we think logically,
1> PF contribution is a part of our yearly income.
2> we have to pay tax on our yearly income.
3> Saving under 80C is just a facility provided by the Govt. If today, Govt will remove this, then we have to pay tax on PF contribution also.
According to me we are already paying tax on PF contribution. So it must not be taken again on Withdrawal of it.
Thanks for your point on Interest part. The table is really very helpful. Thanks.
regards
Avneep
Avneep,
If you see, when we compute taxable income, we remove the PF portion from our income, and then compute Tax.
So, in a way, these things do not get added while computing tax, and hence these are taxed at the time of withdrawal.
Similar is the case with FD’s. When we invest in them these are considered in 80C. However, if we withdraw before their maturity, these are taxable.
Regards,
gurpreet
Hi Gurpreet,
You must be talking about Old Pension Scheme. The same is followed in privet sectors also.
But in new pension scheme, NPS, the complete amount “Employee + Employer” contribution in PF is considered for 80C. it is not deducted from net amount of salary. It is always taxable. thats why at the time of withdrawal it should not be taxable.
FDs are different than PF.
regards
Avneep
Avneep,
Yes, ur correct, indeed in NPS both employer and employee contributions r considered for deduction, but under sec 80CCD. Also, they are exempt from tax upto 10% of the salary (employer and employee both are allowed a maximum exemption of 10% each)
thanks,
gurpreet
I have a small query.
I shifted my job from a pvt MNC(after serving for almost 3 yrs) to govt.
In private there was PF and here in govt there is NPS tier 1.
So only option I had was withdrawal of the PF amount.I did withdraw.So as such this amount is taxable?
But considering the fact that I didnot have any other alternative(since govt now does not offer PF only NPS for new joinees) so is there any special clause that could probably help in avoiding the tax liability…
Kapil,
Unfortunately the amount withdrawn will be taxed, as presently there is no clause covering the cases as encountered by you.
thanks,
gurpreet
This is an interesting situation – I hope they do something about it.
Yeah Manshu,I too hope they should do something about it..any ideas where to appeal for it..coz I don’t know how many people fall under my category but sure there should be a gud number…..
Hoping for something to happen
No, not really.
Thnks Gurpreet for the reply..
Shinoj,
Following r the answers :
1. Amount withdrawn is not taxable.
2 & 4 . In case, it was taxable, then it would be the amount withdrawan. Since, you transferred ur PF from A to B, hence the withdrawal cannot be bifurcated between A & B. Taxable amount is the amount withdrawan.
3. Even though you apply after 1 year, it will still be taxable, as you worked with the employer only 4 years.
5. Can you please elaborate on ur point 5 as I’m not sure abt this???
I hope ur queries are answered to certain extent….
Hi Gurpreet,
Thanks a lot for your comments. It was helpful.
Regarding Point 5, they are two different types of PF entities. I think the following links better explain them.
http://www.citehr.com/305664-difference-between-epfo-pf-trust.html
http://www.citehr.com/95611-why-pf-trust-better-than-epf.html
Thanks,
Shinoj
Can you please provide answer for my query.
I changed the job from Company A to Company B after 3 years. And I selected the option of transferring the PF from A’s account to B’s account.
1. After another 3 years (so total 6 years), I resign and plan to withdraw the total PF. Is it taxable?
2. If yes, is it on the total or A’s amount or B’s amount.
3. If I resign from the company after one year (so total 4 years), but applied for PF withdrawal only after one more year (so after 5 years), will it be taxed.?
4. If yes, is it on the total or A’s amount or B’s amount.
5. Is there any difference between the taxation rules or interest rate calculation between EPFO and PF Trust.
Thanks in Advance,
Shinoj
One point I need to add is for EPF to be tax exempt it needs to be in continuance for 5 years. In case, once changes his employer midway, for calculation the said 5 years, the period of employment with the earlier employer will also get counted.
Thanks for the pointer Vishal – I got an email about this in the morning.