PF withdrawal after 5 years of continuous service is tax free

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I worked in a company for 8 years and contributed to the Employee Provident Fund (EPF). Then I worked for a small company for about 14 months that did not have EPF. Subsequently, I took a break from employment for a few months and joined a larger company having EPF. Have I completed my 5 years of continuous employment for withdrawals being tax-free?

Anonymus

Where there are multiple employers and the provident fund (PF) balances are transferred to the PF account with the most recent employer, the cumulative period of employment with all the employers is required to be seen for the purpose of evaluating whether the employee has rendered continuous service for a period of five years or more.

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In the instant case, as you had rendered 8 years of service with your initial employer, you have already rendered a continuous period of service for more than 5 years. Further, assuming you shall transfer your PF balance of your initial employer to the current employer, continuous period of employment shall be more than five years for the purpose of evaluating the continuous period for your current employer as well, irrespective of the duration of your current employment. Hence, as and when you withdraw the PF balance from your current employer (including amount transferred from your PF account with initial employer) on ceasing employment there the same could be considered as tax free.

However, please note that any accretions to the PF balance for the periods that you were on a break from employment and any accretions to the PF balance from the time that you will cease employment with the third organization (i.e. after last day of working with the third organization till date of withdrawal), would be taxable in your hands.

Answered by Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India

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