Is PF withdrawal taxable under which head section?
Is PF withdrawal taxable? How to show PF withdrawal in Income Tax Return in India. I want to understand PF withdrawal tax calculation in India. Since have resigned from my company after working for 3 years and now I am in need of money due to which I am planning to withdraw and close my PF account.
EPF or PF Withdrawal may be taxable by Income Tax (I.T.) Department of India. I.T. Department recently informed Employees Provident Fund Organization (EPFO) to deduct Tax (TDS) from the withdrawal sum of money, in-case withdrawal occurred before five years of membership. Assessment authorities have referred to a standard in the 1961 Income-Tax Act that PF withdrawals before completing 5 years of contribution by employee into the EPF will be taxable.
In Conclusion, where the EPF or PF withdrawal taxable before five years of constant contribution by employee. In such cases, received payment by the person in regard of employers contribution alongside with interest accrual, such PF withdrawal taxable under which head "Salary" section. Also Interest earned on the contribution made by employee's is taxed under head "Income from Other Source" section. And the principle amount contributed by employee would be under tax exemption.
Lets take an example to understand this better:
Q.1) An employee worked for a privately owned company for four and half years. You are requesting for PF withdrawal demand to your ex-employer. Considering this scenario, Is PF withdrawal taxable under any head section?
Ans) We comprehend that the PF managed by your previous employer. According to the Income-Tax Act, if the representative / employee /individual has rendered constant contribution with ex-employer for a period of 5 years or more, at that point the withdrawal of total accumulated balance from such PF withdrawal is tax exempted.
Since you have serve four and a half years which is under five years with the ex-employer, you will be obligated to pay tax on the sum accumulated from your PF account in addition to the normal tax paid as a salary income. You will be required to settle all the government obligation concessions profited by you so far by virtue of commitment to such perceived PF. Further, the total contribution by employer’s addition to interest thereon, which was not taxed earlier, it shall be taxed as profits / income in lieu of salary.
However, if you decide that the accumulated balance in your PF account to be transferred to your another / new PF account managed by your new employer, then no tax liability shall arise in-case of transfer of funds from one PF account to another PF account.