Is Income Tax deductible on PF Withdrawal

This query is : Resolved

Guest

Guest (Querist)

28 October 2009 Is Income Tax deductible on PF Withdrawal in below cases: -

1. PF withdrawn before 5 years of employment.
2. PF withdrawn after 5 years of employment.

CA SANJAY MUKHERJEE

CA SANJAY MUKHERJEE (Expert)
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28 October 2009 1. Yes, On emplyoers' cont. and interest there on( if exceeds the limit) .

2. No

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)
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28 October 2009 agree

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Guest

Guest (Querist)

28 October 2009 Hey Guys,

Exceed would mean above 12% contribution...right?

Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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01 August 2024 Yes, income tax implications on Provident Fund (PF) withdrawals depend on the duration of employment and the amount of contribution. Here’s how it works:

### 1. **PF Withdrawal Before 5 Years of Employment:**

- **Taxability:** If you withdraw your PF before completing 5 years of continuous service, the amount withdrawn is taxable in your hands.
- **Tax Deduction:** The amount of PF contribution withdrawn is subject to tax as per your applicable income tax slab rates.
- **TDS:** The employer is required to deduct TDS (Tax Deducted at Source) on PF withdrawals if the amount exceeds ₹50,000. The rate of TDS is generally 10% (plus applicable surcharge and cess), but if the PAN is not provided, the rate could be higher.

### 2. **PF Withdrawal After 5 Years of Employment:**

- **Taxability:** If you withdraw your PF after completing 5 years of continuous service, the withdrawal is generally exempt from tax.
- **Conditions:** The 5-year period includes service with multiple employers if the PF accounts are transferred from one employer to another without withdrawal.
- **Interest:** The interest earned on the PF balance is also exempt from tax if the withdrawal is after 5 years of continuous service.

### **Contribution and Tax Implications:**

- **Contribution Exceeding 12%:** PF contributions made by the employee are typically at a rate of 12% of the salary. Any contribution above this rate, which is not mandated by the employer, is referred to as **Voluntary Provident Fund (VPF)**. The excess contribution is also eligible for tax benefits under Section 80C, up to the overall limit of ₹1.5 lakh per annum. However, if the VPF is withdrawn before completing 5 years, the interest on the VPF portion will be taxable.

### **Summary:**

1. **PF Withdrawn Before 5 Years:**
- Taxable as per income tax slab.
- TDS applicable if amount exceeds ₹50,000.

2. **PF Withdrawn After 5 Years:**
- Exempt from tax.
- Includes both principal and interest.

**Note:** Always ensure you keep proper records of your PF contributions and withdrawals. It’s a good practice to consult with a tax professional for personalized advice, especially if you have multiple PF accounts or complex employment history.