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After working for three-and-a-half years, I joined a new company in early 2020. Prior to this, the contributions to my provident fund (PF) were deposited with a private trust of the previous company. After joining the new company, I was unable to transfer the funds accumulated in my previous PF account to the new one. So, I have applied for withdrawal of funds from the previous PF account. What are the tax implications?
- Yogesh Chandrasekaran
As per the facts of your case, we understand that you had contributed for 3.5 years towards the PF maintained by an approved private PF trust of your erstwhile employer as per the provisions of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (‘EPF Act’). Further, you have not been able to transfer the PF accumulated balance to your PF account with the new employer that is being maintained with Employees’ Provident Fund Organization (EPFO).
As per the provisions of Rule 8 of Part A of Fourth Schedule to the Income-tax Act, 1961, the accumulated balance due and becoming payable to an employee participating in a recognised PF shall be excluded from the computation of his total income—
(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if the service has been terminated by reason of employee’s ill-health, or by contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, or
(iii) if, on the cessation of employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable is transferred to his individual account in any recognised provident fund maintained by new employer; or
(iv) if the entire balance standing to the credit of the employee is transferred to his NPS account.
Also, please note that as per the provisions of the EPF scheme, post cessation of employment, a member may withdraw the EPF accumulations from the fund if he is not employed at any other establishment (to which the provision of EPF Act is applicable), in the preceding two months from the date on which the application for withdrawal is made. However, since you have already started the new employment, you shall anyway not be eligible to withdraw the PF accumulation and you may get the PF accumulations transferred under the new employer.
Since your period of service and contribution with the erstwhile employer is less than five years and your case does not fall in any of the other prescribed scenarios under Rule 8 as explained above, the withdrawal of the accumulated balance in your PF Trust shall be considered as taxable in your hands. Hence, it is advisable that the balance with the PF Trust is transferred to the new employer.
Please note that there is a process for transfer of funds from private trust to the Regional Provident Fund Commissioner which needs to be evaluated.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.