A question that you regularly gets to hear is: “I feel switching job. Must i withdraw my provident fund amount? ” Our instant reply is “no”. A provident fund (PF) is often a corpus to become maintained for retirement life or emergencies. It shouldn’t become withdrawn as so when you change work.
Retaining the amount in the PF account facilitates the fund grow which has a compound effect. Furthermore, the interest (for FY14, the rate is likely to be 8. 75%) each year earned on the total amount in a identified PF account is tax-exempt, thus turning it into a good investment decision option. When an individual changes jobs, the PF balance might be transferred from the prior employer to the newest one, so the pace of growth is maintained as well as any adverse income-tax implication might be avoided.
As for each PF regulations, every time a person leaves the employment, he is allowed to withdraw the particular PF amount provided that he remains unemployed for more than two months. Usually, he is needed to transfer the PF balance on the new employer. Right now, let us think about the income-tax implications if your amount from a recognised PF bill is withdrawn. You will find two scenarios through an I-T point of view:
Withdrawal of PF soon after five years of continuous service
When considering computing continuous service within this situation, as very well as ‘situation 2’ talked about below, the amount of service with today's employer is deemed. However, the period of service with the previous employer can be added if the particular PF amount was transferred to the current employer last time those changed jobs. Within this situation, the entire amount withdrawn will be considered as exempt through income, and no taxes are liable to be paid.
Disengagement of PF inside five years of continuous service
Within this situation, the employer’s side of the bargain, together with interest (which is not taxed earlier), will be taxed as ‘salary’. Even more, the amount of deduction claimed by the employee in the last years under Section 80C will be considered as ineligible and you will be reversed. Therefore, taxes that would've been payable for all of the earlier years if your ployee was not permitted claim deduction underneath Section 80C pertaining to his contribution to PF will be considered to fall due in the year of revulsion. Also, the interest on the employee’s own contribution will be considered fully taxable since ‘income from some other sources’.
However, just how much withdrawn from the particular PF account (even inside five years of continuous service) isn't considered taxable if your service of the employee has been terminated due in order to ill-health or discontinuance of employer’s business or due to any other explanation beyond the control from the employee. It is pertinent to make note of that in terms of the provisions from the income-tax laws, if your PF amount is taxable, the payer is necessary to deduct income tax during the time of making the payment from the PF amount on the employee.
So, withdrawing the PF total when one adjustments jobs has severe income-tax implications if your period of ongoing service is lower than five years.
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