What’s the tax liability for taking out funds from two PF accounts?
2 min read 16 Mar 2023, 10:47 PM ISTIf the employee changes his job and transfers his EPF account from the old employer to a new one, then the period of previous employment would be included in computing the period of continuous service.
PremiumI worked with two different establishments—first from 2011 to 2015 and then from 2015 to 2016, respectively—and was assigned two different provident fund (PF) accounts and universal account numbers (UANs ). I could not merge the two accounts since there was no response from the PF office on how to go about it. My current organization, where I have been working for the past seven years, does not have provision for PF and so I have been unable to transfer the previous PF accounts here. I want to know whether I can withdraw funds fully from the two accounts. If so, what will be the taxability of the proceeds?
—Rahul K
As per the EPF Scheme, a member may be permitted to withdraw the full amount standing to his credit in the account on ceasing to be an employee in an establishment covered under Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, provided that a continuous period of at least two months have passed since cessation of such employment with a covered establishment, immediately before the date on which application for withdrawal is made.
In the instant case, considering that you have not been employed with a covered establishment for a continuous period of more than two months, you would be eligible to withdraw the accumulated balance.
As per the Income-tax Act, balance to the employee’s credit on the date of cessation of employment, is exempt from tax, if the employee has rendered continuous service with his employer for a period of five years or more; or if such continuous service (being less than five years) was terminated due to ill health or contraction or discontinuance of employer’s business or any other cause beyond the control of the employee.
If the employee changes his job and transfers his EPF account from the old employer to a new one, then the period of previous employment would be included in computing the period of continuous service.
As you have not transferred the contribution with your first employer to your account with subsequent employer, your period of service with respective employers shall be individually considered to determine period of service and corresponding taxability. Thus, the withdrawal if taxable (considering period of service less than 5 years), would be subject to tax in your hands, to the extent prescribed.
However, in case the contribution with the first employer 1 is transferred to an account with the second employer, the total period of service and contribution will be considered to verify the years of service . In case such combined period exceeds 5 years, the withdrawal of accumulated balance up to the date of cessation of last contribution, shall be exempt from tax in your hands. Any interest accrued thereafter will be taxable.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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