When do you transfer PF funds to new a/c?

I worked in an organization for three years but was transferred to a new unit after the company split and I worked here for four years and six months. While the Employee Provident Fund (EPF) account shows no break for this entire period, the UAN site shows the service record of two organizations separately. I am facing an issue now while filing a claim online since the tenure is shown as less than five years and so there is tax deduction at source (TDS). How can I resolve this?

—Sudha

As per the provisions of the Income-tax Act, 1961, accumulated balance due and becoming payable to an employee participating in a recognised provident fund shall be excluded from the computation of his total income

(i) if he has rendered continuous service with his employer for a period of five years or more, or

(ii) 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

(iii) 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

(iv) if the entire balance standing to the credit of the employee is transferred to his NPS account

As seen above, if on the cessation of employment, the accumulated balance due and becoming payable is transferred to PF account with new employer and the period of total service is five years or more, the withdrawal shall not be taxable. Accordingly in such case, there shall not be any TDS.

It is to be noted that the online UAN portal reflects service period under the respective employers separately. If the PF accumulations from the first employer is transferred to the PF account with the new employer, then the PF department automatically takes into consideration the cumulative service period and allows the exemption available and hence no TDS is applied.

Based on the limited facts available, it seems you have not transferred the PF accumulations from the first employer and thus the PF department is considering the service period as less than 5 years and accordingly considering the same as taxable and deducting tax at source / TDS.

You may therefore arrange for transfer of the PF accumulations from the first employer to the PF account with the new employer (by following the specified process under the PF Scheme depending upon whether the previous entity was with RPFC or had an inhouse Trust), which would enable the EPFO to allow you the above stated exemption or else you need to claim the tax refund while filing the tax return. In case of claiming of tax refund in the return, the tax authorities may seek explanation for the same considering that TDS had been deducted by the EPFO on such incomes.

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

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