After working for three and a half years, I joined a new company in early 2020. Earlier, my provident fund (PF) contribution was deposited with a private trust of the previous company. After joining the new company, I was unable to transfer the amount deposited in my previous PF account to the new account. So, I have applied to withdraw funds from previous PF account. What are the tax implications?
– Yogesh Chandrashekhar
As per the facts of your case, we understand that you have invoked the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (‘EPF Proceedings’). Also, you are not able to transfer the PF accumulated balance in your PF account with the new employer being created with the Employees’ Provident Fund Organization (EPFO).
In accordance with the provisions of Rule 8 of Part A of the Fourth Schedule to the Income-tax Act, 1961, the accumulated balance due and to be payable to an employee participating in a recognized PF shall be excluded from computing 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 is terminated by reason of ill health of the employee, or for the contraction or closure of the business of the employer or for other reasons beyond the control of the employee, or
(iii) if, on termination of employment, the employee takes up employment with another employer, the accumulated balance due and to be payable shall be transferred to his personal account in any recognized provident fund maintained by the new employer goes; either
(iv) If the entire balance credited to the employee’s account is transferred to his NPS account.
Also, please note that as per the provisions of the EPF Scheme, after the termination of employment, if a member is not employed in any other establishment (to which the provision of the EPF Act applies), he shall withdraw the EPF deposit from the fund. can remove. In the last two months from the date of applying for refund. However, since you have already started a new employment, you will not be eligible to withdraw the PF accumulation anyway and you can get the PF accumulation transferred under the new employer.
Since your period of service and contribution with erstwhile employer is less than five years and your case does not fall under any other prescribed scenario under Rule 8 mentioned above, the accumulated balance in your PF Trust will be treated as withdrawal of your Taxable in hand. Hence, it is advisable to transfer the balance amount along with the PF Trust to the new employer.
Please note that there is a process of transfer of funds from private trust to Regional Provident Fund Commissioner which needs to be evaluated.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.