Tax Query: Taxation on EPF balance

I worked in a company —whichis an exempted establishment under EPF Act —for seven years, between 2016 and 2023. In 2023, I joined another company (without any gap) which is also an exempted establishment under the EPF Act. I was a regular contributor to EPF and EPS during my service in my previous organisation.

I wish to withdraw my EPF balance held with my previous organisation’s PF Trust instead of transferring the same to my current organisation. I have completed more than five years of continuous service in my previous organisation. I have availed exemption in each year on my contribution to EPF.

Can I withdraw my EPF balance without any tax liability either on contributed or interest earned so far?

Gaurav Deshmukh

As per the Provident Fund provisions, you can withdraw your Provident Fund balance only when you have resigned from service and are unemployed for a period of two months post resignation. On change in employment, the member should get his Provident Fund account transferred to the new establishment.

From a taxation perspective, accumulated balance standing to the credit of the PF account would be exempt from tax if contribution has been made for a continuous period of more than five years.

However, on a combined reading of section 10(12) with rules 2(f) and 8 of Part A of Fourth Schedule of the Income tax Act, interest credited post cessation of employment is not exempt from tax. As per Rule 8(iii) of Part A of Fourth Schedule, tax exemption is available only to the extent of accumulated balance standing to the credit of the employee on the day he ceases to be an employee i.e. the balance in the Provident Fund account on the day he ceases to be an employee.

The interest received on employee and employer contribution from the cessation of contribution up to the date of withdrawal is taxable.

The author is a practising chartered accountant

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