How is withdrawal of funds from PF taxed?

What are the foundations for withdrawing the proceeds from a provident fund (PF) account inside 5 years of opening it, particulary if I’ve already claimed 80C deduction in earlier years?

—Identify withheld on request

It’s presumed that you’re presently not with an employer to whom the provisions of Workers Provident Fund and Miscellaneous Provisions Act, 1952.) don’t apply.

As per provisions of the Revenue-tax Act, 1961, the amassed stability due and turning into payable to an worker collaborating in a acknowledged provident fund shall be excluded from the computation of his complete earnings on the next circumstances:

a. if he has rendered steady service together with his employer for a interval of 5 years or extra, or

b. if the service has been terminated by purpose of worker’s ill-health, or by contraction or discontinuance of the employer’s enterprise or different trigger past the management of the worker, or

c. if, on the cessation of employment, the worker obtains employment with another employer, to the extent the amassed stability due and turning into payable is transferred to his particular person account in any acknowledged provident fund maintained by new employer; or

d. if the whole stability standing to the credit score of the worker is transferred to his NPS account

Since your interval of service and contribution interval is lower than 5 years, your case doesn’t fall in any of the prescribed situations beneath Rule 8 as defined above. Thus, the withdrawal of EPF amassed stability (when permitted beneath the PF legal guidelines), shall be thought of as taxable.

Primarily based on the provisions of Rule 9 of Schedule IV of the Act, the tax could be required to be calculated (for previous years of contribution) as if the fund was not a acknowledged provident fund, which would come with the next:

•Employer contribution in the direction of EPF (to the extent not taxed earlier);

•Worker contribution in the direction of EPF to the extent deduction is claimed whereas computing the overall earnings for respective years of contributions.

•Curiosity on employer and worker contribution in the direction of EPF (to the extent not taxed earlier)

The tax legal responsibility could be decided primarily based on the relevant tax charges for the prior years of respective contributions achieved by together with the stated earnings within the taxable earnings and with out contemplating the exemptions/ deductions claimed (as if the fund was an unrecognised provident fund).

The tax legal responsibility arising foundation the stated calculation as diminished by the taxes already paid within the respective years could be required to be reported and supplied to tax within the return of earnings for the yr of withdrawal.

There is no such thing as a must revise the prior yr tax returns for reporting this earnings. Any tax deducted at supply (TDS) on the time of withdrawal may be offset towards this legal responsibility.

Parizad Sirwalla is companion and head, international mobility providers, tax, KPMG in India.

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