The balance of the PF is exempt from tax in the event of continuous service for five years


I have two different passbooks under the same universal account number and the two passbooks have not yet been merged. Currently I am not employed anywhere and my combined service at the two previous companies is 4 years and 9 months. Can I withdraw my entire provident fund (PF) and the amount of my total pension contribution from these two previous companies and that too tax-free?

—Name hidden on request

Yes, assuming that you have been unemployed for two months from the date of departure from the last organization, you can withdraw all the PF and pension contributions paid during your employment in the previous companies.

From a tax point of view, in accordance with article 10 (12) read with rule 8 of part A of the fourth schedule of the Income Tax Act, 1961, the accumulated balance of the PF due and payable to the employee, that is to say the balance to his credit on the date of termination of his employment, is exempt from tax if he has rendered continuous service for a period of five years or more.

When there are multiple employers and the PF balances are transferred to the PF account with the most recent employer, the cumulative employment period with all employers should be seen in order to assess whether the employee has returned a continuous service for a period of five years or more. In this case, even if you transfer your PF balance from the previous PF account to the last PF account, the cumulative period will be less than five years.

Therefore, whether you withdraw the PF balance individually or after transferring funds to a common account, the PF balance at the time of withdrawal will be taxable in accordance with Rule 9 of Part A of the Fourth Schedule of the Act as the period of service would be considered less than 5 years.

Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG India.

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