PF withdrawal not taxable after 5years of continuous service

Live Mint :Parizad Sirwalla :5 June 2013

As per domestic tax laws, withdrawal of PF is taxed if withdrawn before continuous service of 5 years

As per domestic tax laws, withdrawal of provident fund (PF) is taxable if it is withdrawn without rendering continuous services for five years or more with the employer. On change in employment in the past, if the accumulated PF balance has been transferred to the PF account of the current employer, then the period of previous employment is also included as part of continuous service.

If a person has rendered total continuous service for less than five years with the current and previous employers, if any, and transferred PF balance from the account maintained by the previous employer to the current employer, then the entire PF withdrawn will be taxed in the year of receipt of the accumulated PF. The total of employer’s contribution plus interest thereon, which was not been taxed earlier, will be taxed as salary. Further, the amount of tax benefit claimed under section 80C on account of your contribution shall be taxed, subject to a cap of Rs.1 lakh per fiscal if this was considered as exempt from tax in the earlier relevant fiscals. The interest on your own contribution shall be taxed as “income from other sources”. The tax rate would depend upon the applicable income tax slab.