PF withdrawal tax-free after 5 years of continuous service

The organization that I used to work for was closed in January. If an employee loses his job, does the withdrawal of provident fund becomes tax-free even if the account hasn’t completed five continuous years? What are the important rules to know regarding provident fund (PF) withdrawal?

—Rajesh Srinivasan

The withdrawal of the accumulated balance from a recognized PF is taxable if the employee has not rendered continuous services for five years or more to the employer. While computing the continuous services of five years, the period of previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account of the new or current employer.

However, an exemption from tax is available wherein the employee has not been able to render continuous service of five years owing to the service getting terminated for various reasons such as discontinuance of the employer’s business or reasons beyond the control of the employee.

In your case, you should be able to withdraw PF balance held with your employer. However, you need to be aware that this has to be done according to the provisions of the The Employees’ Provident Funds And Miscellaneous Provisions Act, 1952, which requires you to have a cooling period of two months before you take up your new job.

I will be changing my job after nine years. Will I be taxed if I withdraw my PF amount? If so, will it be taxed on the net or the gross amount?

—Shweta Das

The withdrawal of PF triggers tax implications if the same is withdrawn without rendering continuous services for five years or more with the employer. On change in employment in the past, if the accumulated PF balance has been transferred to the PF account of the current employer, then the period of previous employment is also included as part of continuous service and accordingly the five years will be calculated.

As you have rendered total continuous services for more than five years with your current employer, the entire PF withdrawn shall not be taxed in your hands.

You will have to, however, report the amount of PF withdrawn in the income tax return form to be compliant from a reporting perspective.

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