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Tax rate on PF withdrawal based on account holders income
August, 20th 2015

I completed four years and 11 months with my employer (joined on 25 June 2010 and left my job on 21 May 2015). I wanted to know if I will be taxed when I withdraw money from my provident fund (PF) account. Is there a way to avoid this deduction? I am not working anywhere at the moment. Can I continue the same PF account with my new employer?

The withdrawal of the accumulated balance from a recognized PF is taxable if the employee has not rendered continuous services for five years or more to the employer. While computing the continuous service 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 of the new employer.

We understand that you have rendered service for four years and 11 months.

Assuming that this was your first job or you have not transferred the PF balance, if any, from the previous employer, if you withdraw from your PF, it shall be taxable in the year of receipt.

The total of employer’s contribution plus interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C of the Income-tax Act, 1961, on account of your contribution to the recognized PF shall also be taxed as salary. 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 financial year(s) during which the PF contributions were made.

Apart from these, the surcharge and cess, as applicable, for each of the years of receiving tax benefit will also be payable in addition to the basic income tax.

In your case, since the PF contribution is spread over different FYs, tax rates of those years would have to be considered.

You would be entitled to avail relief under section 89.

In your case, if the PF amount is withdrawn, the same would be taxable (presuming that your employer maintains PF with a recognized PF).

Tax will be deducted at source (TDS) at 10% if the PF amount is more than Rs.30,000 and you give your Permanent Account Number (PAN). If you do not provide your PAN, then tax would be deducted at the maximum marginal rate.

If your employer has a private PF trust, TDS will be as per the relevant rules.

Do note that withdrawal of PF will be as per the PF provisions, which require you to have a non-employment period of two months after leaving your job.

 
 
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