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Tax on PF withdrawal if service not of five continuous years
August, 07th 2014

The withdrawal of the accumulated balance from a recognized PF triggers tax liability only if the employee has not rendered continuous services for five years or more to the employer. While computing the continuous services of five years, the period of previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account with the new or current employer.

Since you had already rendered service with the employer company for five years and seven days, there should not be any tax implications on withdrawal of PF. However, you would be required to report the PF accumulations in the tax return form to be compliant from disclosure perspective.

If the total number of years of service with a company are less than five years, withdrawal of accumulated PF balance shall be taxed in the financial year of withdrawal.
The total of employer’s contribution plus interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C on account of your own contribution to the recognized PF shall be taxed. Also, the interest on your own contribution shall be taxed as “income from other sources”.

The tax rate would depend upon your applicable income slab in each of the fiscals during which the PF contributions were made. Further, the surcharge (as applicable) and education cess, shall be applicable for each of the fiscals and payable in addition to the basic income tax.

Relief under section 89 shall be available as applicable.

Further, withdrawal of the PF accumulations will be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Accordingly, it would be required to have a cooling period of two months.

Alternatively, you can transfer the accumulated PF balance to the PF account to be maintained with the new employer.

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