Can a niche in profession have an effect on PF withdrawal?

After working for round four-and-a-half years with an organization, I stop my job in December 2021. I discovered a brand new job in mid-February 2022 and in addition obtained my staff’ provident fund (EPF) transferred to the brand new agency. But, will this hole of one-and-a-half months in service in any have an effect on my eligibility to withdraw funds from EPF account?

—Ankur Arora

Based on the restricted info out there, we perceive that after contributing to acknowledged provident fund (PF) with the Employees Provident Fund Organisation (EPFO) for 4.5 years via your former employer, you’ve got transferred the accrued steadiness to the brand new PF account with the present employer.

As per the provisions of the Income-tax Act, 1961, the accrued steadiness due and turning into payable to an worker collaborating in a recognised PF, is exempt within the palms of the worker to the extent supplied in rule 8.

Further, as per this rule, the accrued steadiness due and turning into payable from a recognised PF shall be excluded from the computation of complete earnings of worker—

(i) If he has rendered steady service along with his employer for a interval of 5 years or extra, or

(ii) If the service has been terminated by cause 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

(iii) If, on the cessation of employment, the worker obtains employment with every other employer, to the extent the accrued steadiness due and turning into payable is transferred to his particular person account in any recognised PF maintained by new employer; or

(iv) If the complete steadiness standing to the credit score of the worker is transferred to his National Pension System (NPS) account

It is to be famous that the accrued steadiness attributable to an worker means the steadiness (together with accretions thereon) standing to the credit score of an worker on the day of cessation of his employment.

In such a case, exemption is on the market solely in respect of accrued steadiness (as on the final day of your earlier employment) that are transferred to the acknowledged PF account maintained below the brand new employer. Any curiosity earnings obtained submit cessation of your earlier employment until switch to the PF account with new employer could be thought of as taxable earnings.

Hence, for the hole of 1.5 months in employment, curiosity earnings for such interval shall be taxable in your palms. Except for curiosity earnings for such interval, in case your cumulative interval of employment (i.e. the contribution interval to a acknowledged PF) is greater than 5 years on the time of withdrawal (together with advance), you’ll be eligible for exemption out there below the provisions of the earnings tax Act and could be eligible to withdraw the PF accumulations for the desired functions (as relevant).

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

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