How will I be taxed on my EPF withdrawal?

I left my job after two years of service in an workplace and joined a brand new group. Now, because of some points at my present group, I’m unable to switch my earlier firm’s  worker provident fund account (EPF)  to my present one. 

What a part of my previous EPF account will probably be taxable as there was no contribution for 2 years?

—Name withheld on request

As per the details of your case, we perceive that you simply had contributed for 2 years in direction of Employee Provident Fund (‘EPF’) maintained by your erstwhile employer with Employees’ Provident Fund Organization (‘EPFO’) as per the provisions of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act). Further, you haven’t been in a position to switch the PF collected stability to your present PF account with the brand new employer (maintained with the EPFO).

From a taxability perspective, on the time of withdrawal of the PF accumulations, as per the provisions of Rule 8 of Part A of Fourth Schedule to the Income-tax Act, 1961, collected stability due and changing into payable to an worker taking part in a acknowledged provident fund shall be excluded from the computation of his complete revenue:

(i) If he has rendered steady service along with his employer for a interval of 5 years or extra, or

(ii) If the service has been terminated by motive of worker’s ill-health, or by contraction or discontinuance of the employer’s enterprise or different trigger past the management of the worker, or

(iii) If, on the cessation of employment, the worker obtains employment with another employer, to the extent the collected stability due and changing into payable is transferred to his particular person account in any acknowledged provident fund maintained by new employer; or

(iv) if the complete stability standing to the credit score of the worker is transferred to his NPS account.

If the collected EPF stability contains any EPF stability transferred from the previous employer, in computing the interval of steady service, the service underneath the previous employer can also be included.

Since your interval of service and contribution with the erstwhile employer is lower than 5 years and you’ve got additionally not transferred the EPF collected stability to your present PF account, your case doesn’t fall in any of the prescribed eventualities underneath Rule 8 as defined above.

Thus, the withdrawal of collected stability in EPF account along with your earlier employer (when permitted underneath the provident fund  legal guidelines), shall be thought of as taxable in your arms, which would come with the next;

a. Employer contribution in direction of EPF;

b. Employee contribution in direction of EPF to the extent deduction is claimed whereas computing the full revenue for respective years of contribution

c. Interest on employer and worker contribution in direction of EPF

Parizad Sirwalla is accomplice and head, international mobility companies, tax, KPMG in India.

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