I worked with two organizations – from December 2017 to June 2018 in the first, and from May 2019 to June 2020 in the second – but I did not withdraw the amount of the employee provident fund (EPF) from any ‘them. My next job will start in April 2022. Do I have to transfer the amount from my first organization’s account to the second and wait because I don’t want to pay taxes? Or is there another way to do it?
In accordance with section 10 (12), read together with rule 8 of part A of the fourth schedule of the Income Tax Act, 1961, the accumulated balance of the PF due and payable to the employee is exempt. tax if he has rendered continuous service for five years or more. When there are multiple employers and the PF balances are transferred to the account of the most recent employer, the cumulative period of employment with all employers should be considered to assess whether the employee has rendered continuous service during five years or more. In this case, your combined employment period with the first and second organizations is less than five years. Therefore, it is advisable to transfer the balance of the PF account of the first organization to that of the second.
Once you have joined the third organization in April 2022, you can transfer the balance of the combined PF account to the third organization’s PF account. If after adding your period of service with the third organization, the cumulative period of service is greater than five years, the entire accumulated balance owed to you at the time of termination of employment with the third organization will be exempt from tax. .
However, any increase in the PF balance for the periods during which you were in interruption of employment and any increase in the PF balance from the moment you cease your employment with the third organization (i.e. after the last day working with the third organization until withdrawal date), would be taxable in your hands.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG India.
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