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Is PF withdrawal taxed?
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June 27, 2006

You have a question about house rent allowance, medical allowance or even a general tax query.

Here's where we step in with our experts, Relax With Tax.

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When I left my earlier company, I opted for the withdrawal of my provident fund money that was being maintained by the company in a trust.

The company deducted tax on withdrawal.

I was under the impression that Employees Provident Fund is tax-free.

Also, if I withdraw money from my Public Provident Fund account will that also be subject to tax?

- Shilpi Srivastava

We presume your earlier company maintained a recognised provident fund account, which is referred to as RPF.

On withdrawal from RPF at the time of termination of service, the accumulated balance is exempt from tax only if you have been in continuous service for a period of five years or more.

Service rendered to the previous employer is also to be included.

If the continuous service is less than five years due to reasons beyond your control (ill health, or discontinuance of employer's business), you still will be eligible for exemption.

If not, then you will be taxed on withdrawal of the accumulated balance from the RPF.

Withdrawals from the PPF account is based on defined eligibility criteria. Such withdrawals are not taxed.

I have got an offer from a company who has filed for an exemption from Provident Fund laws.
1. Is it legal to have such exemptions?
2. What are my alternatives to proceed with this company with respect to my PF account with my current company?
3. Can I still contribute to the PF account and what will be the tax benefits on the same?

- Sumit Agarwal

Section 16 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, stipulates certain conditions that need to be satisfied for an establishment to be exempted from the operation of this Act.

So it may be possible that this company is availing of the exemption legally.

In respect of your PF account with your earlier employer, you could choose either of the following propositions:

1. Close the account and withdraw the balance lying to your credit. If your contributions are pertaining to five or more years of continuous period of employment, then there would be no tax impact on such withdrawal.

2. Transfer the balance PF from your old employer to your new employer. In this case, though, there would be no fresh contributions during your employment with the new employer.

In such a situation, you could explore with your new employer if voluntary PF (only your contribution to this fund) is possible. If yes, then you could contribute and avail of the tax benefits on this contribution.

Got a question for Relax With Tax? Please write to us!

Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.

Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).

Illustration: Dominic Xavier

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Number of User Comments: 17

Sub: PF transfer or withdrawal

i have changed my job recently. how can i withdraw or transfer the pf from my old employer to new employer. transfer or withdrawal. what ...

Posted by peednas

Sub: hoe to transfer pf account

i have recently changed the job. how can i transfer my pf account?

Posted by hitesh b patel

Sub: PF withdrawal

Hello : I have worked during 2002-2004 in an organisation, I have my PF for that. how can i get that PF money . Please ...

Posted by santosh

Sub: if PF withdrawal is tax

What is treatment to be givein while when PF is withdrawn after 2 years, after 7 years and after 10 years (inc case of 10 ...


Sub: PF amount

hi, How can I know my PF amount. Is there is any web-site, please inform to me. regards, Kasi

Posted by Kasi


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