What’s the tax legal responsibility for taking out funds from two PF accounts?

I labored with two totally different institutions—first from 2011 to 2015 after which from 2015 to 2016, respectively—and was assigned two totally different provident fund (PF) accounts and common account numbers (UANs ). I couldn’t merge the 2 accounts since there was no response from the PF workplace on methods to go about it. My present group, the place I’ve been working for the previous seven years, doesn’t have provision for PF and so I’ve been unable to switch the earlier PF accounts right here. I need to know whether or not I can withdraw funds absolutely from the 2 accounts. If so, what would be the taxability of the proceeds?

—Rahul Ok

As per the EPF Scheme, a member could also be permitted to withdraw the complete quantity standing to his credit score within the account on ceasing to be an worker in an institution lined below Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, offered {that a} steady interval of no less than two months have handed since cessation of such employment with a lined institution, instantly earlier than the date on which utility for withdrawal is made.

In the moment case, contemplating that you haven’t been employed with a lined institution for a steady interval of greater than two months, you’d be eligible to withdraw the collected stability.

As per the Income-tax Act, stability to the worker’s credit score on the date of cessation of employment, is exempt from tax, if the worker has rendered steady service along with his employer for a interval of 5 years or extra; or if such steady service (being lower than 5 years) was terminated attributable to sick well being or contraction or discontinuance of employer’s enterprise or every other trigger past the management of the worker.

If the worker modifications his job and transfers his EPF account from the outdated employer to a brand new one, then the interval of earlier employment can be included in computing the interval of steady service.

As you haven’t transferred the contribution along with your first employer to your account with subsequent employer, your interval of service with respective employers shall be individually thought of to find out interval of service and corresponding taxability. Thus, the withdrawal if taxable (contemplating interval of service lower than 5 years), can be topic to tax in your palms, to the extent prescribed.

However, in case the contribution with the primary employer 1 is transferred to an account with the second employer, the whole interval of service and contribution might be thought of to confirm the years of service . In case such mixed interval exceeds 5 years, the withdrawal of collected stability as much as the date of cessation of final contribution, shall be exempt from tax in your palms. Any curiosity accrued thereafter might be taxable.

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

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