PF is tax free if an employee has been in service for 5 years or more

I worked with Company A from February 2011 to February 2014 and then transferred to another division of the company which has a separate legal entity. From February 2014 to August 2016, I received a different PF member ID under the same UAN (the PF amount from the previous mission was recently transferred to this one). In addition, for service in Company B from September 2016 to August 2020, a new UAN has been issued. I have two PF credentials (two credentials issued in company A were merged by transferring funds from one to the other) and two UANs. Will my PF withdrawal from company A be tax exempt or should I transfer the PF from company A to company B and then request a withdrawal? If you opt for the latter, is it advisable to withdraw only partially (i.e. the equivalent of the value of the fund of company A) or would the entire corpus be tax free?

—Vikram Shukla

From a tax point of view, in accordance with subsection 10 (12) read with rule 8 of part A of the fourth schedule of the Income Tax Act, 1961, the accumulated PF balance due and payable to the employee is exempt from tax if he has rendered continuous service. for a period of five years or more. When there are multiple employers and the PF balances are transferred to the PF account with the most recent employer, the cumulative employment period with all employers should be seen in order to assess whether the employee has returned a continuous service for a period. five years or more.

In this case, your PF balance has been transferred between the two legal entities of company A. Therefore, the cumulative period of your PF account with company A is more than five years. However, your period of employment with Company B is less than five years. Therefore, if the balance of the PF account of company A is transferred to the PF account of company B, the total cumulative period of contribution to the PF would also be greater than five years.

Accordingly, after the transfer of the PF balance, the accumulated accumulated balance to the extent payable to you at the time of termination of employment will be exempt from tax.

However, if you do not transfer your balance from the PF account of company A to the PF account of company B, only the balance accumulated in the PF account of company A to the extent that is payable to you at the time of termination. employment will be tax exempt.

Parizad Sirwalla is Partner and Head, Global Mobility Services, Taxation, KPMG in India.

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