I was working in an organization and left recently after five years and nine months of continuous service. Employee Provident Fund (EPF) in the said organization is managed under their private trust and not in EPFO. It is linked to my Universal Account Number (UAN). The organization that I have joined now, does not come under the purview of Provident Fund (PF) Act and cannot deduct PF from salary. Hence, my previous organization has asked me to withdraw the PF amount accumulated as I have completed 2 months from my last date.
Can I transfer my accumulated PF amount from the Trust to EPFO through UAN and let the amount remain there? In case I shift jobs again, can I transfer it to a different organization in future?
If I cannot transfer the amount, I will have to withdraw it. In that case, how should I invest the corpus so that the amount is kept invested in some instrument?
Since I have more than 5 years of service, tax would not be levied on PF withdrawal. Is my understanding correct?
—Name withheld on request
We understand that your current employer organization is not covered under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (the EPF Act). Hence, they will not be able to open a PF account for you.
As per the provisions of the EPF Act and its rules, PF balance can only be transferred from one PF account to another PF account.
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In the absence of a new PF account with the new employer, you will not be able to transfer your erstwhile PF balance.
Also, there is no mechanism under the law whereby the PF balance can be transferred by the employee directly from a private trust to EPFO especially where the current employer is not covered under the EPF regime.
We have not verified the trust rules and have hence not commented on the requirement of a mandatory withdrawal in your case.
Further, as this query is from an investment perspective, you may want to consult with a financial advisor.
As per Section 10(12) read with Rule 8 of Part A of fourth schedule of the Income-tax Act, 1961 (the Act), the accumulated PF balance due and payable to the employee i.e. balance to his credit on the date of cessation of his employment, is exempt from tax if he has rendered continuous service for a period of five years or more.
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In the instant case, as your period of employment with the previous organization was more than 5 years, the entire accumulated balance to the extent payable to you at the time of ceasing employment with the organization, shall be exempt from tax.
However, please note that any accretions to the Provident Fund (PF) balance from the time that you ceased employment with the previous organization (that is, after the last day of working with the organization till date of withdrawal), would be taxable in your hands.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
