PF withdrawal not taxed if worked for 5 continuous years

I worked for company X for four years and nine months, and then worked for company Y for a period of three years. I did not transfer my provident fund (PF) balance in company X when I moved to company Y. Recently, I resigned from company Y and want to start my own business. If I withdraw my PF balance from company X (more than seven years since the last contribution was made), would the sum be taxable? —Vipul The withdrawal of the accumulated balance from a recognized PF triggers tax implications if the employee has not rendered continuous services for five years or more to the employer. While computing the continuous services of five years, the period of previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account of the new or current employer. We have assumed that your job with company X was your first job. As the total number of years of service with company X are less than five years (i.e. four years and nine months), withdrawal of the accumulated PF balance shall be taxed in the financial year (FY) in which the money was withdrawn. Merely holding the PF balance for more than five years will not take away the tax implications. The total of employer’s contribution and the interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C on account of your contribution to the recognized PF shall be taxed. Moreover, the interest on your own contribution shall be taxed as “income from other sources”. The tax rate would depend upon your applicable income slab in each of the financial years during which the PF contributions were made. Further, the surcharge (as applicable) and education cess shall be applicable for each year and will also be payable in addition to the basic income tax. We have assumed that you have also contributed to the recognized PF maintained with company Y. In case, you transfer the accumulated PF balance maintained with company X to the PF account maintained with company Y and then withdraw the accumulated balance, while computing the period of continuous service with company Y, the period of service rendered with company X will also be included. As the cumulative years of service with both the companies shall be more than five years, there will not be any tax implications on PF withdrawal. In addition to these factors, you should also note that the withdrawal of the PF will be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which requires you to have a cooling period of two months.

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