No tax on PF withdrawal after 5 years of continuous service

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A person worked
in a Indian-based organization for four years. Now he is going abroad for work.
Since he has not completed five years of continuous service, his provident fund
(PF) withdrawal will be taxable. But if he get Universal Account Number (UAN)
and hold the PF for another two years and then put forth the withdrawal
request, will I still be taxed?

The UAN is
a 12-digit ‘portable’ number allotted to each PF member. It gives them control
of their Employees’ Provident Fund (EPF) account and minimises the role of the
employer in matters related to a member’s account. However, this does not have
any impact on the taxability of PF withdrawal.
Withdrawal
of the accumulated balance from a recognized PF is taxable if the employee has
not rendered continuous service for five years or more to the employer. While
computing the continuous service 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 employer. We understand
that you have rendered service for four years. Assuming that this was your first
job or you have not transferred PF balance, if any, from the previous employer,
if you withdraw your PF, it shall be taxable in the year of receipt.
 
Total of
employer’s contribution plus interest thereon will be taxed as salary. Further,
the amount of tax benefit claimed under section 80C of the Income-tax Act,
1961, on account of your contribution to the recognized PF shall also be taxed
as salary. Also, the interest on your own contribution shall be taxed as
“Income from other sources”. Tax rate would depend on your applicable income
slab in each of the financial years (FY) during which PF contributions were
made. Surcharge and cess, as applicable, for each of the years will also be
payable. If the PF contribution is spread over different years, tax rates of
those years would be considered.
 
You would
be entitled to avail relief under section 89.
 
Please
note that if PF amount is taxable (presuming that your employer maintains
accounts with a recognized PF), tax will be deducted at source at 10% if the withdrawal
amount is more than Rs.30,000 and the individual has provided the Permanent
Account Number (PAN). If PAN is not available, tax would be deducted at maximum
marginal rate.
 
In case of change of
employment where the accumulated PF balance maintained with the old employer
(say, company A) is transferred to the PF account maintained with the new
employer (say, company B) and later on the accumulated PF balance maintained
with company B is withdrawn, the period of service of four years served with
company A will also be counted for the five years of continuous services.
Accordingly, since the cumulative years of services would be more than five
years, the withdrawal of entire PF from company B will not trigger any tax
liability.
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