Taxability of withdrawal from General provident fund before retirement of a stategovt employee

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GIRISH GUPTA SAKALA (Querist)
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24 June 2022 If a state /central govt employee withdraws his balance in general provident fund before retirement for personal purposes will it be taxable .

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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11 July 2024 Withdrawals from General Provident Fund (GPF) by state or central government employees are generally not taxable if the withdrawal is made according to the rules and regulations governing the GPF scheme. Here’s how it typically works:

1. **Taxability of GPF Withdrawals**:
- **Retirement**: Normally, withdrawals from GPF at the time of retirement are fully exempt from tax.
- **Before Retirement**: If an employee withdraws from GPF before retirement (for personal purposes such as education, medical treatment, marriage, etc.), the taxability depends on whether the employee has claimed tax benefits on the contributions made to GPF during the employment period.

2. **Tax Treatment**:
- If the employee has claimed tax benefit under Section 80C for the contributions made to GPF during the years of employment, the amount withdrawn (including interest accrued) is taxable as 'Income from Other Sources' to the extent of the tax benefits claimed earlier.
- However, the principal amount of contributions that were not allowed as a deduction under Section 80C (if any) is not taxable.

3. **Calculation**:
- The taxable portion of the withdrawal is computed based on the proportion of contributions that received tax benefits. This is calculated as (withdrawal amount × (Total deductions claimed under Section 80C / Total contributions to GPF)).

4. **Exemption**:
- If the withdrawal is made for specified purposes like medical treatment or education, as specified under the Income Tax Act, the amount may be exempt from tax up to certain limits and conditions.

5. **Reporting in Income Tax Return**:
- Any taxable amount from GPF withdrawals before retirement should be reported in the employee's income tax return under the head 'Income from Other Sources'.

### Conclusion

In summary, withdrawals from General Provident Fund (GPF) by state or central government employees before retirement for personal purposes may be taxable if tax benefits were claimed on the contributions made. The taxable amount is determined based on the proportion of contributions that received tax benefits under Section 80C. It's advisable for the employee to consult with a tax advisor or chartered accountant to determine the exact tax implications based on their specific circumstances.