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?

—Name withheld on request

It is presumed that you simply’re at current not with an employer to whom the provisions of Employees Provident Fund and Miscellaneous Provisions Act, 1952.) do not apply.

As per provisions of the Income-tax Act, 1961, the gathered stability due and becoming payable to an employee collaborating in a acknowledged provident fund shall be excluded from the computation of his full income on the subsequent conditions:

a. if he has rendered regular service alongside together with his employer for a interval of 5 years or additional, or

b. if the service has been terminated by motive of employee’s ill-health, or by contraction or discontinuance of the employer’s enterprise or totally different set off previous the administration of the employee, or

c. if, on the cessation of employment, the employee obtains employment with each different employer, to the extent the gathered stability due and becoming payable is transferred to his explicit particular person account in any acknowledged provident fund maintained by new employer; or

d. in case your whole stability standing to the credit score rating of the employee is transferred to his NPS account

Since your interval of service and contribution interval is decrease than 5 years, your case does not fall in any of the prescribed eventualities beneath Rule 8 as outlined above. Thus, the withdrawal of EPF gathered stability (when permitted beneath the PF authorized tips), shall be thought-about as taxable.

Based on the provisions of Rule 9 of Schedule IV of the Act, the tax might be required to be calculated (for earlier years of contribution) as if the fund was not a acknowledged provident fund, which might include the subsequent:

•Employer contribution within the path of EPF (to the extent not taxed earlier);

•Employee contribution within the path of EPF to the extent deduction is claimed whereas computing the entire income for respective years of contributions.

•Interest on employer and employee contribution within the path of EPF (to the extent not taxed earlier)

The tax obligation might be determined based totally on the related tax fees for the prior years of respective contributions carried out by along with the acknowledged income throughout the taxable income and with out considering the exemptions/ deductions claimed (as if the fund was an unrecognised provident fund).

The tax obligation arising basis the acknowledged calculation as decreased by the taxes already paid throughout the respective years might be required to be reported and equipped to tax throughout the return of income for the 12 months of withdrawal.

There is not any should revise the prior 12 months tax returns for reporting this income. Any tax deducted at provide (TDS) on the time of withdrawal could possibly be offset in opposition to this obligation.

Parizad Sirwalla is companion and head, world mobility firms, tax, KPMG in India.

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