What are the rules for withdrawing the proceeds from a provident fund (PF) account within five years of opening it, particulary if I have already claimed 80C deduction in previous years?
It is presumed that you are currently not with an employer to whom the provisions of Employees Provident Fund and Miscellaneous Provisions Act, 1952.) do not apply.
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As per provisions of the Income-tax Act, 1961, the accumulated balance due and becoming payable to an employee participating in a recognized provident fund shall be excluded from the computation of his total income on the following conditions:
a. if he has rendered continuous service with his employer for a period of five years or more, or
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b. if the service has been terminated by reason of employee’s ill-health, or by contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, or
c. if, on the cessation of employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable is transferred to his individual account in any recognized provident fund maintained by new employer; or
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d. if the entire balance standing to the credit of the employee is transferred to his NPS account
Since your period of service and contribution period is less than 5 years, your case does not fall in any of the prescribed scenarios under Rule 8 as explained above. Thus, the withdrawal of EPF accumulated balance (when permitted under the PF laws), shall be considered as taxable.
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Based on the provisions of Rule 9 of Schedule IV of the Act, the tax would be required to be calculated (for past years of contribution) as if the fund was not a recognized provident fund, which would include the following:
•Employer contribution towards EPF (to the extent not taxed earlier);
•Employee contribution towards EPF to the extent deduction is claimed while computing the total income for respective years of contributions.
•Interest on employer and employee contribution towards EPF (to the extent not taxed earlier)
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The tax liability would be determined based on the applicable tax rates for the prior years of respective contributions done by including the said income in the taxable income and without considering the exemptions/ deductions claimed (as if the fund was an unrecognised provident fund).
The tax liability arising basis the said calculation as reduced by the taxes already paid in the respective years would be required to be reported and offered to tax in the return of income for the year of withdrawal.
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There is no need to revise the prior year tax returns for reporting this income. Any tax deducted at source (TDS) at the time of withdrawal can be offset against this liability.
