Tax treatement on PF withdrawal

POSTED BY Sylvestor ON November 1, 2011 2:55 pm COMMENTS (7)

Hi,

I withdrew my PF after 10 years of service and recieved around 7 Lacs rupees which are currently lying in my Savings Account. I have following questions.

1. Is this amount taxable?

2. As I fall in 30% tax bracket, this amount, if taxed, tax liability will be huge. What can be done with this amount so that it will be excempted from tax?

3. I am planning to use this amount towards the down payment of my dream home. Will this give me any tax benefit?

Your reponse is highly appreciated.

Thanks,
Sylvestor

7 replies on this article “Tax treatement on PF withdrawal”

  1. Dear Anand, I’m sorry that I forget to add in my prev. reply, even if you are withdrawing after completing 5Y holding period, the amount ‘ll still be taxable as the issue is minimum service span of 5Y with your employer & not holding period to be eligible for tax free status.

    A workable solution after knowing the reply that you are going to start your own consultancy, you may withdraw your amount in next FY after leaving the job in current FY. In case your income from your business in next FY falls short of 30% tax bracket, you ‘ll be able to save a bit of tax. There is more to it. The redemption from your PF, ‘ll fall into income from other sources, which you may set off against your business losses or expenses as the case may be in next FY.

    Thanks

    Ashal

  2. anand says:

    dear ashal and vignesh,

    as i m going to start my own business( consultancy), there would not be any employer anymore.
    hence i think i m left with only two options:
    1. withdraw PF with applicable tax( i m in 30 % tax bracket )
    OR
    2. leave amount with previous employer till completion of 5 years ( without furher interest )and then withdraw .

    kindly suggest .
    thanks in advance

    –dr anand

  3. Dear Anand, you may transfer your existing PF amount to your new employer’s PF by filling form 13. it may take some time but you ‘ll be happy to know the effect of compounding on this amount after 15-20 years.

    If you opt to withdraw now, it ‘ll become taxable. if you ‘ll leave as it is – as per recent guidelines, no fresh interest ‘ll be credited after your account is classified dormant due to no fresh investment as you have already left the job.

    Thanks

    Ashal

  4. Dear Sylvestor, here is the reply for your query.

    1. The amount is tax free as you have completed 5Y of service with your employer.

    2. See answer 1 above. You may use the amount as per your own choice.

    3. As the question of tax liability on this PF amount does not arise, you should not worried for tax benefit. You may use this amount as down payment for your dream home.

    Thanks

    Ashal

  5. VIGNESH BASKARAN says:

    @Ananad

    Sorry for the late reply.

    Instead of withdrawing the amount U can transfer the amount to the new account by filling form 13 and submitting it to the new employer.

    Happy investing!!!!!

  6. VIGNESH BASKARAN says:

    HI

    This may be helping you

    Have a look

    http://www.financialexpress.com/news/premature-pf-withdrawal-attracts-tax/777859/0

    regards
    Vignesh

    1. anand says:

      dear vignesh ji,
      suppose one has quit the job within 5 years of service, can he leave his EPF amount in previous organization account and withdraw it only after completion of 5 years, in order to save tax?

      regards
      prasoon

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