CA Pratik Arora
PF withdrawal is taxable if a person has worked in the company for less than 5 years. Tax cannot be saved even by investing in any govt schemes / bonds. It just gets added to income from salaries, and then the taxability will depend upon the Gross Income of the assessee.
|Head||Statutory PF||Recognized PF||Unrecognized PF|
|Employers contribution to PF||Exempt from tax||Exempt up to 12% of salary (Basic +DA)||Exempt from tax|
|Deduction under sec 80C||Available||Available||Not available|
|Interest credited on PF account||Exempt from tax||Exempt up to 9.5%||Exempt from tax|
|Lump sum payment received at the time of retirement or termination of service||Exempt from tax||Exempt from tax:||Only employees share of contribution is exempt|
|a. If the employee has worked for at least 5 years with the employer|
|b. If the service is terminated on account of ill-health or by contraction or discontinuance of the employer’s business or any other reason beyond control of employee|
|c. If the employee transfers the balance in his PF to his new PF a/c maintained by his new employer|
If you withdraw before completing a period of 5 years, then all your previous years income gets recomputed as if the fund was unrecognized from the very beginning (i.e., the tax benefits you received on your own contribution u/s 80C/88 in earlier years will get forfeited) and further the employer contribution and interest received will be added to your current income subject to relief under section 89. In other words Payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier). I-T provisions provide that the trustees of a recognized PF or any person authorised by the regulations of the fund to make the payment of the accumulated balance to the employee should deduct tax at source (TDS) while paying the amount. Further, the person liable to deduct tax has to issue the certificate of tax deducted at source (Form 16) within the specified time frame to the employee depicting the details of taxes withheld from the accumulated PF balance and also comply with other salary-related compliance necessities.
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