Tax on Provident Fund Withdrawal

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?

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327 thoughts on “Tax on Provident Fund Withdrawal”

  1. Dear Gurupreet,

    I went through the forum and found an appropriate one,even after so many posts I have still queries for below scenario :

    1. I want to withdraw the pf from previous company’s PF Trust where I worked for 4.5 years.Will the TDS be deducted in this case and will it be on the basis of last drawn payslip for previous company.

    2. Had I worked for more than 5 years in a company and then withdrawn the pf , even then is it required to show it as income while filing IT return. Will the tax be deducted on it.

    3. If answer to question2 is yes, then at which point of time in life is the PF withdrawal is tax free

    Reply

  3. If the employees has neither change the job nor he is getting retired. If he withdraw Rs.200000/- from his PF a/c whether it is taxable?

    Reply

  4. Hi,

    I worked in a company X from 2007 to 2010 and this company X was bought out by company Y. All my PFs prior to 2007, has already been transferred to the company X’s PF a/c, however, X’s PF a/c has not yet been transfereed to company Y’s PF a/c. I submitted the form for transferring my PF in company X to Company Y, and I am being told the the form got rejected and i have to submit a new form. Since I am in need of money and am facing difficutly in getting it transferred, is it a wise idea to withdraw my PF in company X, without transferring it to Y? Please let me know.

    Regards,
    Ganesh

    Reply

  5. Dear Mr. Gurpreet,

    I work for a reputed public ltd. company. Recently, I have resigned from the services of this firm, in order to start my own venture. On my last working day with the firm, I would be completing about 4.5 years of service.
    Now, if I withdraw my PF, say after 5 years, will the PF benefits that would accrue will be taxable or will they be exempt.

    Eagerly looking for a quick reply. Thanks.

    Reply

  6. Hi,
    I want to know that if I transfer PF from my Company “A ” to “B”,and then I withdraw the whole amount from B,will there be any tax deduction.
    (I have already left both the companies and now working in “company C”.)

    The total period exceeds 5 years and thus I think income tax deduction is not applicable.Please guide.Below is my service duration w.r.t each company.
    Company A : From 26-05-2006 to 31-03-2010.

    Company B : From 01-04-2010 to 30-01-2012.

    Regards
    Jitendra

    Reply

  7. Hi,
    Can I transfer PF from 1st and 2nd organization to 3rd organization directly? Or can say 1st Organization to 3rd Organization without 2nd Organization interfere?

    Thanks,
    Anil Pawar,
    7702408111 .

    Reply

  8. Dear Gurupreet,

    I was working with Company A from 17April 2007 to 29Feb 2008. There the PF was mainatined at Mumbai PF account.

    Then I joined Company B and worked from 17March 2008 to 29Feb 2012. Here the PF was mainatined by thire own trust.

    I had trnasfreed my PF from company A to company B. Now, i have joined company C, however have requested for my PF withdrawl.

    Would this PF be taxable in light of the above?

    Fruther, approx. 4% of the Employer contribution was trasnfereed in Employees Pension Scheme. Would this amount be receviable now and if yes what about the income tax on the same?

    Or when the EPS amount would be availiaebl?

    Please reply and thanks in advance.

    Reply

  9. Hi Mr. Gurpreet,

    I joined a renowned public limited company on 27th Jan 2000 and worked in one of their factory situated in Madhya Pradesh for almost 2 years and during that period i was member of Govt. PF Scheme. On 20th Jan 2002, my services was transferred to the head office of the same company situated in Mumbai. Since, i joined there at a senior position, i became member of their own PF Scheme (which is a recognised PF scheme). After working in head office for more than 3 years , sometimes during may 2005, i left that company and joined a company in Dubai, UAE. I didn’t withdraw the balance lying in PF account until July 2011 as the company has a provision that in case i wish to join them back i can continue to be part of the PF fund. The balance continue accumulate interest on it till time i decided to withdraw it finally. While settling the payment the fund deducted TDS at the maximum rate of 30% and asked me to claim the same in my income tax return.

    My queries are as under:
    1. what would be the taxability of such withdrawal given the circumstances that I worked with the same company for more than 5 years but i was member of the PF scheme for less than 5 years.

    The fact that PF was withdrawn 6 year after leaving the company and the fund continued the interest untill the amount was withdrawn. Can i say that i was member of the Fund for more than 5 years

    2. If i have to file IT return, under which head i have to include such income. “salaries” or “other sources” if under salaries then will i be eligible for any standard deduction etc.

    I would greatly appreciate your advise in this regard

    Regards

    Nitin Nahar

    Reply

  10. Please let me know if the PF is taxable.

    I worked in Company A from 1 May 2000 to 24th May 2004; Company B from 7th June 2004 to 31st August 2007; Company C from 17th Sept 2007 till date.

    I have not been able to transfer the PF from Company A to B to C; as in most cases the company was in a start up stage, and in case of Co B, my forms were considered misplaced after a year of submission of the forms.

    As on March 2012, I am now getting PF with drawn from Company A and B . Will this be taxable?

    Geetha

    Reply

    1. Hi Geetha,

      If you withdraw your PF before service of 5 years, it is taxable.In your case if you would have been able to transfer, you would have saved this taxation.But now since your PF is withdrawn before the required service years limit, it is very well taxable.

      Reply

  11. Hi, I left my company on feb 10th where as my joining date was march 12th, so about a month short of 5 years in service. Now that I have withdrawn the PF, the balance showed 208000 before but i received only 178000, about 30000 rupees short. So does it mean tax has been duduced at about 15% on the total? Please point me in the right direction. Thanks in advance…

    Reply

    1. Hi Biju,
      Yes it does look like the TDS has been deducted, it will be confirmed once u receive the statement from ur office or PF deptt. The % / Tax slabs depends upon ur last drawn salary.

      Thanks & Regards,
      Gurpreet

      Reply

  12. Hi,

    I have been working for a company since July 2007. Now i am planning to quit from this comp before completing 5 years. Kindly let me know will my PF be taxable ? if yes whts the %

    Reply

      1. Thanks for the reply Gurpreet….

        Please let me know , after quiting the job before completing 5 years , can i have my PF account opened till it becomes 5 years and then withdraw? (with out transfering to another account)…. what % of current drawn salary will be deducted ?

        Reply

        1. Hi Manju,
          Even after quitting the job b4 completing 5 yrs, the PF withdrawal will still be taxable, as the PF a/c should hv a continuous deposit until 5 yrs…..The entire amount withdrawn will b taxable.

          Thanks & Regards,
          Gurpreet

          Reply

  13. Hi Gurpreet,

    Thanks for taking time and answering all the user questions diligently, greatly appreciated. I too have a query. I worked in x company from April 2007, our dept was acquired by another company Y in May 2010. Y company has its own PF trust (recognized) and I quit this Y company in November 2010. I had applied for PF withdrawal and I got amount only in December 2011. From the computation sheet, i can see that the PF amount from may 2010 – november 2010 has been taxed at source. I have started my own venture since in May 2011 and have not had salary till date as we are still working on our product .

    I would like to know if I need to pay income tax on the PF amount that got transferred?

    Reply

    1. Hi Prasad,
      Once u file ur Income tax return, you’ll show the gross amount of PF withdrawal as income along with ur other income. U’ll then calculate tax on that income and adjust the TDS deducted on PF withdrawal, the net tax would be payable/refundable.

      Thanks & Regards,
      Gurpreet

      Reply

  14. Hi,
    I have in my first company for 3 yrs and 8 months. (1st Aug 05 – 31st Mar 09). Then left the company for some personal reason and sat idle for next 6 months. Joined the 2nd company in Oct 09 – till date (2 yrs. 8 months).
    Here I have 2 queries:
    A. Is there any tax deduction if I want to withdraw my PF of my 1st company? If so, what is the percentage of deduction?
    B. If I will transfer the 1st PF to my current company PF, what will be the deduction charges? If so what is the %? If I will leave my current company in next 1 year down the line and withdraw the whole PF, then what will be the deduction charges?

    Thanks
    Tutu Raj

    Reply

    1. Tutu,

      The PF withdrawl will be added to your income and taxed at your income tax slab rate.So if you fall under 20% tax slab currently then it is taxed at the same rate.
      If you transfer this PF to existing company then there will be no tax.

      At any time you pay tax on PF withdrawl according to your income.

      Reply

  15. Hi,

    I have checked my PF acct balance online recently.. is that balance inclusive of Interest amount accumilated till now?

    Thanks in advance,
    Nag.

    Reply

    2. Hi Nagesh,

      To share from my Experiance., its not correct figers. with the message you will also be knowing when was the last update done on your PF account, it would be as of that day without interest…..

      Thanks
      Anand

      Reply

  16. Sir, I was employed with a company as an employee from May 2009 to Feb 2012 which is less than 5 years. I resigned and now I am working as a contractor in another company where I donto get PF. I want to withdraw PF from my first company now, without tax being deducted by the government.how long should I wait before withdrawing my PF from first employer to avoid tax OR can I transfer PF to PPF to avoid tax. please repsond. thanks

    Reply

    1. Crossley,

      PF withdrawal is tax free only when you have continued the service for at least five years.The best option is to transfer your PF balance to the new company.However you cannot do this. You can withdraw the PF balance. The government will not deduct any tax. You will have to add the corpus in your income and then will have to pay the tax according to your tax slab.

      Reply

  17. Quoting from my article Withdrawal or Transfer of Employee Provident Fund
    Q: Are there in any tax implications, if I withdraw the EPF balance at the time of a Job change?
    In case you are a member of recognized provident fund it depends on if contribution is over 5 years or not, including transfers from different companies. For ex: an employee who has worked with X company for say 3 years, then he resigned from that organisation and joined Y company, wherein he worked for 2 years, then resigned from there to join establishment for 2 years but during these 7 years of service he has not withdrawn but transferred his Employee provident fund, then we say continuous service of 7 years.

    If you withdraw before completing a period of 5 years, then all your previous years income gets recomputed as if the fund was unrecognized from the very beginning (i.e., the tax benefits you received on your own contribution u/s 80C/88 in earlier years will get forfeited) and further the employer contribution and interest received will be added to your current income subject to relief under section 89. In other words Payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).

    I-T provisions provide that the trustees of a recognised PF or any person authorised by the regulations of the fund to make the payment of the accumulated balance to the employee should deduct tax at source(TDS) while paying the amount. Further, the person liable to deduct tax has to issue the certificate of tax deducted at source (Form 16) within the specified time frame to the employee depicting the details of taxes withheld from the accumulated PF balance and also comply with other salary-related compliance necessities

    Reply
  18. Pingback: Withdrawal or Transfer of Employee Provident Fund « Be Money Aware Blog

  20. Pls clarify whether my PF will be taxable.
    1. Worked in Company ‘A’ from 2003-2004 (15 months)
    2. Worked in Company ‘B’ from 2004-2007 (36 months)
    3. Worked in Company ‘C’ from 2007-till date (52 months)

    I have transfered my PF from “A” to “B” and “B” to “C”.
    If I leave my current organisation will the tax be deducted from PF.

    Reply

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