TDS not levied on PF withdrawal if you work for five continuous years
September, 14th 2020
I worked in Company A for 12 years and then moved to Company B and worked for 2.5 years. There was a gap of one month between the two. Thereafter, I stopped working. Company A had deposited my Employees’ Provident Fund (EPF) contributions in a PF account, while Company B opened a different account for PF. Four months after leaving Company B, I transferred Company A’s PF account to Company B’s PF account. My status is non-salaried ever since I left Company B. I have following questions: 1) will the tax treatment for the two corpuses (at Company A and B) be different if I withdraw the entire amount today? 2) will Company B corpus attract tax deducted at source (TDS)? 3) will Company B corpus be taxable on withdrawal?
It is assumed that you have ceased employment before completing the age of 55, and you have not migrated abroad permanently.
Queries 1, 2 and 3: The accumulated PF balance due and payable to the employee (the balance to his credit on the date of cessation of employment) is exempt from tax if he has rendered continuous service for a period of five years or more. Where there are multiple employers and the PF balances are transferred to the PF account with the most recent employer, the cumulative period of employment is seen. Since the cumulative period of employment is more than five years, the accumulated balance to the extent payable to you post ceasing employment with employer B shall be exempt.
It may also be noted that for the period that you were on a break from employment, you would not be considered as an employee of any organization and, hence, any accretions in the accumulated PF balance due to you during this period would also be taxable in your hands. Tax on the same should be paid through the prescribed advance tax instalments (if applicable) and/or self- assessment tax prior to filing of the tax return.
As you have rendered continuous service for a period of five years or more, there should be no TDS, while crediting these amounts to you/or at the time of withdrawal made immediately post cessation of employment with employer B.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at