PF is tax-free if an worker has been in service for five yrs or extra
I labored with Company A from February 2011 to February 2014, after which bought transferred to a different division of the corporate that has a separate authorized entity. From February 2014 to August 2016, I used to be issued a special PF membership ID beneath the identical UAN (the PF quantity from the earlier task was transferred not too long ago to this one). Moreover, for service in Company B from September 2016 to August 2020, a brand new UAN was issued. I’ve two PF IDs (two IDs issued in Company A had been merged by switch of funds from one to the opposite) and two UANs. Will my withdrawal of PF from Company A be tax-free or ought to I switch the PF from Company A to Company B after which apply for a withdrawal? If choosing the latter, is it advisable to solely withdraw partially (that’s equal to the fund worth of Company A) or would your entire corpus be tax-free?
—Vikram Shukla
From a tax perspective, as per Section 10(12) learn with Rule 8 of Part A of Fourth Schedule of the Income Tax Act, 1961, the collected PF steadiness due and payable to the worker is exempt from tax if he has rendered steady service for a interval of 5 years or extra. Where there are a number of employers and the PF balances are transferred to the PF account with the newest employer, the cumulative interval of employment with all of the employers is required to be seen for the aim of evaluating whether or not the worker has rendered steady service for a interval of 5 years or extra.
In the moment case, your PF steadiness was transferred between the 2 authorized entities of Company A. Hence, the cumulative interval in respect of your PF account with Company A is greater than 5 years. However, your interval of employment with Company B is lower than 5 years. Hence, if the steadiness in Company A’s PF account is transferred to Company B’s PF account, the entire cumulative interval of contribution to the PF would even be greater than 5 years.
Accordingly, put up switch of PF steadiness, the cumulative collected steadiness to the extent payable to you on the time of ceasing employment shall be exempt from tax.
However, in case you don’t switch your steadiness in Company A’s PF account to Company B’s PF account, then solely the collected steadiness in Company A’s PF account to the extent payable to you on the time of ceasing employment shall be exempt from tax.
Parizad Sirwalla is accomplice and head, international mobility companies, tax, KPMG in India.
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