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Tag: PF

  • How is the tax on EPF curiosity calculated?

    I’ve contributed constantly to the Employees Provident Fund (EPF) for over 10 years till 31 December 2015, once I was working with an organization(say, ABC) . After quitting the agency, I didn’t withdraw my EPF and labored independently and with small firms that weren’t obligated to contribute to EPF for 2 years (2016 and 2017). I joined employer (say, XYZ) on 1 January 2018 and resumed contributing to EPF till 31 December 2019. I transferred my EPF from employer ABC to employer XYZ solely in October 2022 and withdrew my complete EPF stability on 30 April with none tax deducted at supply (TDS) by EPFO.

    Is EPF curiosity that accrued in the course of the intervals once I was not contributing to EPF taxable? Specifically, is the curiosity earned between 1 January 2016 and 31 December 2017 and between 1 January 2020 and 30 April taxable within the monetary years by which the curiosity was earned?

    —Name withheld on request

    The amassed provident fund (PF) stability to the credit score of the worker as on the date of cessation of employment, is exempt from tax, if he/she has rendered steady service for 5 years or extra. Where an worker modifications his job and transfers his PF stability from earlier employer to new employer, the interval of employment with the earlier employer(s) can also be included in computing the interval of steady service.

    As you transferred the PF stability along with your earlier employer (ABC) to your account with subsequent employer (XYZ) and thereafter withdrew the amassed PF stability, the interval of 5 years would additionally embrace the interval of service with ABC. Accordingly, the amassed stability to your credit score (until cessation of final contribution) ought to be exempt from tax on the time of withdrawal, to the extent specified.

    As held in few judicial precedents, curiosity accrued on the amassed stability, publish the interval of cessation of employment (i.e. the interval when no contribution is made to the EPF) continues to be taxable. Such curiosity shall be taxable within the respective monetary 12 months by which such curiosity is accrued/ credited on the tax charges relevant to you for the respective monetary 12 months. Accordingly, curiosity for the interval from 1 January 2016 to 31 December 2017 and 1 January 2020 to 30 April 2023 (when no contributions have been made to the PF account) ought to be taxable as earnings from different sources.

    Since you transferred the PF stability along with your earlier employer (ABC) to your account with subsequent employer (XYZ) and thereafter withdrew the amassed PF stability, the interval of 5 years would additionally embrace the interval of service with ABC.

    Accordingly, the accumulations to your credit score throughout your employment with XYZ from 1 January 2018 to 31 December 2019 (together with curiosity accrued) would additionally not be taxable. Hence, not one of the elements shall be taxable in your palms for the interval 1 January 2018 to 31 December 2019.

    Interest accrued on the amassed stability, publish the interval of cessation of employment (i.e. the interval when no contribution is made to the PF) is taxable.

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

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    Updated: 09 Jul 2023, 09:22 PM IST

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  • Has EPFO put any bar on private PF trusts?

    I’ve been a member of the employee provident fund (EPF) for the earlier 16 years. My current group, which I’m now quitting after higher than three years, has a personal PF Trust. I could be changing into a member of a model new agency which is part of the EPFO.

    My current employer claims that the EPFO has stopped accepting funds from private trusts. Is this correct? If I was to withdraw all of the proceeds from my PF account, will or not it is matter to tax deducted at provide (TDS)? Can my current agency, being a personal perception, moreover stop paying curiosity throughout the subsequent three months?

    —Name withheld on request

    We will not be capable of contact upon the exact positions taken by the EPFO with regard to your group.

    As per the provisions of the EPF scheme, an individual can swap the amassed stability from his EPF account held with the erstwhile employer to that at a model new employer, whatever the fact that the sooner or new account is an authorised PF perception or held with the EPFO.

    As per tips, the amassed PF stability due and payable to the employee, as on the date of cessation of his employment, is exempt from tax if an employee has rendered regular service (along with the interval of earlier membership with earlier employers) for a interval of 5 years or additional. Any curiosity accruals submit cessation of employment will not be tax exempt.

    Accordingly, if the amassed stability alongside together with your erstwhile employers had been transferred to the PF Trust of your current employer, the interval of contributory service hitherto would even be added to the interval of regular service.

    Further, in case you can swap the soundness held in your current PF account with the PF Trust to the PF account of your new employer, the an identical shall even be added to your interval of regular service. In such a case, as your mixture interval of regular service could be higher than 5 years, all of the amassed stability to the extent specified must be exempt from tax on the time of withdrawal.

    A PF member would possibly withdraw the entire amount standing to his credit score rating throughout the fund solely on ceasing to be an employee in any establishment to which the PF Act applies, provided that he has not been employed in any lined establishment for a gradual interval of not decrease than two months immediately earlier the date on which he makes an software program for withdrawal.

    A PF account turns into inoperative and would not earn further curiosity, the place an employee retires from service after attaining the age of 55 years or migrates abroad fully or dies and would not apply for withdrawal of his amassed stability, inside 36 months from the date it turns into payable. Until such time, curiosity will proceed to accrue on the PF stability (whether or not or not in a PF Trust or with EPFO).

    Thus, relying in your age and specific particulars, precise implications would must be evaluated.

    Parizad Sirwalla is affiliate and head, world mobility corporations, tax, KPMG in India.

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  • How is withdrawal of funds from PF taxed?

    What are the foundations for withdrawing the proceeds from a provident fund (PF) account inside 5 years of opening it, particulary if I’ve already claimed 80C deduction in earlier years?

    —Name withheld on request

    It is presumed that you simply’re at current not with an employer to whom the provisions of Employees Provident Fund and Miscellaneous Provisions Act, 1952.) do not apply.

    As per provisions of the Income-tax Act, 1961, the gathered stability due and becoming payable to an employee collaborating in a acknowledged provident fund shall be excluded from the computation of his full income on the subsequent conditions:

    a. if he has rendered regular service alongside together with his employer for a interval of 5 years or additional, or

    b. if the service has been terminated by motive of employee’s ill-health, or by contraction or discontinuance of the employer’s enterprise or totally different set off previous the administration of the employee, or

    c. if, on the cessation of employment, the employee obtains employment with each different employer, to the extent the gathered stability due and becoming payable is transferred to his explicit particular person account in any acknowledged provident fund maintained by new employer; or

    d. in case your whole stability standing to the credit score rating of the employee is transferred to his NPS account

    Since your interval of service and contribution interval is decrease than 5 years, your case does not fall in any of the prescribed eventualities beneath Rule 8 as outlined above. Thus, the withdrawal of EPF gathered stability (when permitted beneath the PF authorized tips), shall be thought-about as taxable.

    Based on the provisions of Rule 9 of Schedule IV of the Act, the tax might be required to be calculated (for earlier years of contribution) as if the fund was not a acknowledged provident fund, which might include the subsequent:

    •Employer contribution within the path of EPF (to the extent not taxed earlier);

    •Employee contribution within the path of EPF to the extent deduction is claimed whereas computing the entire income for respective years of contributions.

    •Interest on employer and employee contribution within the path of EPF (to the extent not taxed earlier)

    The tax obligation might be determined based totally on the related tax fees for the prior years of respective contributions carried out by along with the acknowledged income throughout the taxable income and with out considering the exemptions/ deductions claimed (as if the fund was an unrecognised provident fund).

    The tax obligation arising basis the acknowledged calculation as decreased by the taxes already paid throughout the respective years might be required to be reported and equipped to tax throughout the return of income for the 12 months of withdrawal.

    There is not any should revise the prior 12 months tax returns for reporting this income. Any tax deducted at provide (TDS) on the time of withdrawal could possibly be offset in opposition to this obligation.

    Parizad Sirwalla is companion and head, world mobility firms, tax, KPMG in India.

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  • Is the amount gifted by your accomplice taxable?

    I’ve an earnings of ₹12 lakh yearly, along with bonuses. My husband presents me ₹90,000 per 30 days. Will this amount be taxable in my account? If my husband reduces this amount to ₹50,000, will that in the reduction of my tax obligation?

    —Name withheld on request

    As per the provisions of the Income-tax Act, any sum of money or price of property acquired from ‘relative’ should not be thought-about as taxable every throughout the fingers of the donor and the recipient. The definition of the phrase ‘relative’ for the talked about aim consists of accomplice of the individual. Thus, any sum of money acquired by you out of your husband shall not be taxable for each you or your husband.

    It would possibly, nonetheless, be well-known that as per the provisions of Section 64 of the Act, any earnings that arises to the recipient accomplice from belongings gifted by the donor accomplice, might need to be clubbed with the earnings of the donor accomplice, subsequently these provisions might also be examined individually.

    I’ve a provident fund (PF) account for higher than 5 years. Is withdrawal of an amount above ₹50,000 from this account be taxable?

    —Sajeed Turki

    As per provisions of half 192A of the Income-tax Act, tax is required to be deducted at provide upon withdrawal of amassed stability attributable to an employee who has participated in a recognised employee provident fund (EPF), provided such withdrawal should not be exempt from tax as per the prescribed provisions and the mixture amount withdrawn is ₹50,000 or additional.

    Further, as per provisions of half 10(12) be taught with rule 8 of half A of the fourth schedule of the Act, stability to the employee’s credit score rating on the date of cessation of employment, is exempt from tax, if the employee has rendered regular service collectively together with his employer for a interval of 5 years or additional.

    It is assumed hat you’ve got rendered regular firms for a interval of 5 years or additional alongside along with your employers (to whom the Employees Provident Fund and Miscellaneous Provisions Act, 1952 applies) and have contributed in route of recognised EPF for a gentle interval of 5 years or additional. Thus, the amount so withdrawn could be exempt from tax to the extent talked about above and no TDS, or tax deducted at provide, ought to use on the equivalent.

    Please individually discover that any curiosity accrued from date of cessation of employment up to now of withdrawal would, nonetheless, be taxable. Also, any accumulations and curiosity thereon to the extent it pertains to employer contribution in additional of ₹7.5 lakh yearly or curiosity accrued to the extent it pertains to employee contributions in additional of ₹2.5 lakh yearly continues to be taxable.

    Parizad Sirwalla is affiliate and head, world mobility firms, tax, KPMG in India.

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  • What’s the tax legal responsibility for taking out funds from two PF accounts?

    I labored with two totally different institutions—first from 2011 to 2015 after which from 2015 to 2016, respectively—and was assigned two totally different provident fund (PF) accounts and common account numbers (UANs ). I couldn’t merge the 2 accounts since there was no response from the PF workplace on methods to go about it. My present group, the place I’ve been working for the previous seven years, doesn’t have provision for PF and so I’ve been unable to switch the earlier PF accounts right here. I need to know whether or not I can withdraw funds absolutely from the 2 accounts. If so, what would be the taxability of the proceeds?

    —Rahul Ok

    As per the EPF Scheme, a member could also be permitted to withdraw the complete quantity standing to his credit score within the account on ceasing to be an worker in an institution lined below Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, offered {that a} steady interval of no less than two months have handed since cessation of such employment with a lined institution, instantly earlier than the date on which utility for withdrawal is made.

    In the moment case, contemplating that you haven’t been employed with a lined institution for a steady interval of greater than two months, you’d be eligible to withdraw the collected stability.

    As per the Income-tax Act, stability to the worker’s credit score on the date of cessation of employment, is exempt from tax, if the worker has rendered steady service along with his employer for a interval of 5 years or extra; or if such steady service (being lower than 5 years) was terminated attributable to sick well being or contraction or discontinuance of employer’s enterprise or every other trigger past the management of the worker.

    If the worker modifications his job and transfers his EPF account from the outdated employer to a brand new one, then the interval of earlier employment can be included in computing the interval of steady service.

    As you haven’t transferred the contribution along with your first employer to your account with subsequent employer, your interval of service with respective employers shall be individually thought of to find out interval of service and corresponding taxability. Thus, the withdrawal if taxable (contemplating interval of service lower than 5 years), can be topic to tax in your palms, to the extent prescribed.

    However, in case the contribution with the primary employer 1 is transferred to an account with the second employer, the whole interval of service and contribution might be thought of to confirm the years of service . In case such mixed interval exceeds 5 years, the withdrawal of collected stability as much as the date of cessation of final contribution, shall be exempt from tax in your palms. Any curiosity accrued thereafter might be taxable.

    Parizad Sirwalla is associate and head, world mobility providers, tax, KPMG in India.

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  • Do you qualify for greater pension below staff’ provident fund?

    The Employees Pension Scheme was launched by the federal government in 1995. Since its inception, the scheme has gone via a number of amendments and has been riddled with numerous litigations. One such battle lasted for greater than twenty years and was lastly put to relaxation on 4 November by the Supreme Court. The apex court docket’s judgment was quickly adopted by a round from the federal government on 29 December, outlining what eligible staff ought to do.

    Before going into the small print of the round, allow us to first perceive the foundation of the discontent.

    The worker provident fund (EPF), popularly referred to as the retirement fund, is a scheme below which staff and employers make month-to-month matching contributions of 12% of fundamental wage and dearness allowance.

    As a member of the EPF scheme, an worker is entitled to obtain a lump sum quantity on the time of retirement (provident fund), pension after attaining the age of 58 years (pension fund) and insurance coverage advantages in case of demise whereas in service.

    As per the EPF scheme, your complete 12% of the worker’s contribution must be deposited within the provident fund. However, 8.33% of the employer’s contribution goes into the pension fund however with an higher cap of ₹1,250. It is pertinent to notice right here that people who have been members of EPF previous to 2014 had an choice to allocate your complete 8.33% of the employer’s contribution quantity in the direction of pension fund—with none higher ceiling by exercising what was generally known as “twin possibility”. Exercising the next contribution in the direction of the pension fund was financially extra advantageous to the staff. However, the appliance of the twin possibility is the place a lot of the talk began. First, a majority of the staff have been by no means made conscious of the existence of this feature. Second, the place purposes have been filed to that impact, the authorities, on some pretext, rejected the purposes.

    In a judgment within the case of R.C. Gupta and others, delivered on 4 October 2016, a division bench of the Supreme Court repealed the rivalry of the provident fund authorities that the mentioned provision contemplated train of possibility inside a specified time. Pursuant to this judgment, the federal government issued a brand new round, offering a chance to staff whose twin software possibility was rejected hitherto to reapply for a similar, entitling them to obtain pension with out the ceiling restrict.

    Those who’re eligible to use digitally for validating their choices embody: Pensioners, who, as staff, had contributed below the EPF scheme on a wage exceeding the prevalent wage ceiling of ₹5,000 or ₹6,500; those that had exercised twin/joint possibility below the EPF scheme; and people whose purposes have been rejected by the authorities involved.

    With this round, the federal government goals to alleviate the struggles of pensioners. It seeks to make sure that greater pensions are obtained by those that had allotted such greater sums to pension through the course of their employment. Such pensioners might submit their purposes at www.epfindia.gov.in within the prescribed kind.

    The software kind for validation will include the disclaimer in case of share requiring adjustment from provident fund to pension fund and re-deposit of the fund. The software should include the next specified paperwork for proof and for additional processing: Proof of twin/joint possibility of the EPF scheme duly verified by the employer; and proof of remittance in provident fund on greater wages exceeding the prevalent wage ceiling of ₹5,000 or ₹6,500; and proof of remittance in pension fund on greater wages exceeding the prevalent wage ceiling ; and a written refusal of the assistant provident fund commissioner or another greater authority of the staff’ provident fund group to such request/remittance.

    It can also be pertinent to notice that the Supreme Court in its determination dated 4 November has additionally supplied members who have been registered earlier than 1 September 2014, and haven’t but retired, a further interval of 4 months to request for twin possibility and avail of upper pension. While the round is silent about these purposes, it’s seemingly that the authorities might problem a special round to supply directions.

    Neeraj Agarwala is accomplice at Nangia Andersen LLP. Neetu Brahma, supervisor, Nangia Andersen India, contributed to this text.

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  • Can a niche in profession have an effect on PF withdrawal?

    After working for round four-and-a-half years with an organization, I stop my job in December 2021. I discovered a brand new job in mid-February 2022 and in addition obtained my staff’ provident fund (EPF) transferred to the brand new agency. But, will this hole of one-and-a-half months in service in any have an effect on my eligibility to withdraw funds from EPF account?

    —Ankur Arora

    Based on the restricted info out there, we perceive that after contributing to acknowledged provident fund (PF) with the Employees Provident Fund Organisation (EPFO) for 4.5 years via your former employer, you’ve got transferred the accrued steadiness to the brand new PF account with the present employer.

    As per the provisions of the Income-tax Act, 1961, the accrued steadiness due and turning into payable to an worker collaborating in a recognised PF, is exempt within the palms of the worker to the extent supplied in rule 8.

    Further, as per this rule, the accrued steadiness due and turning into payable from a recognised PF shall be excluded from the computation of complete earnings of worker—

    (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 cause 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 every other employer, to the extent the accrued steadiness due and turning into payable is transferred to his particular person account in any recognised PF maintained by new employer; or

    (iv) If the complete steadiness standing to the credit score of the worker is transferred to his National Pension System (NPS) account

    It is to be famous that the accrued steadiness attributable to an worker means the steadiness (together with accretions thereon) standing to the credit score of an worker on the day of cessation of his employment.

    In such a case, exemption is on the market solely in respect of accrued steadiness (as on the final day of your earlier employment) that are transferred to the acknowledged PF account maintained below the brand new employer. Any curiosity earnings obtained submit cessation of your earlier employment until switch to the PF account with new employer could be thought of as taxable earnings.

    Hence, for the hole of 1.5 months in employment, curiosity earnings for such interval shall be taxable in your palms. Except for curiosity earnings for such interval, in case your cumulative interval of employment (i.e. the contribution interval to a acknowledged PF) is greater than 5 years on the time of withdrawal (together with advance), you’ll be eligible for exemption out there below the provisions of the earnings tax Act and could be eligible to withdraw the PF accumulations for the desired functions (as relevant).

    Parizad Sirwalla is associate and head, international mobility providers, tax, KPMG in India

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