I was working in an organization and left recently after five years and nine months of continuous service. The Employee Provident Fund (EPF) of the said organization is managed under their private supervision and not in EPFO. It is linked to my Universal Account Number (UAN). The organization I joined now does not fall under the Provident Fund (PF) Act and cannot deduct PF from salary. Therefore, my previous organization asked me to withdraw the accumulated PF amount because I have completed 2 months since my last appointment.
Can I transfer my accrued PF amount from the Trust to EPFO via UAN and let the amount stay there? If I change jobs again, can I transfer it to another organization in the future?
If I cannot transfer the amount, I will have to withdraw it. In this case, how should I invest the corpus so that the amount remains invested in an instrument?
Since I have over 5 years of service, no tax would be levied on the withdrawal of the PF. Is my understanding correct?
—Name masked on request
We understand that your current employer’s organization is not covered by the Employees Provident Fund and Miscellaneous Provisions Act 1952 (the EPF Act). Therefore, they will not be able to open a PF account for you.
In accordance with the provisions of the EPF law and its rules, the balance of the PF can only be transferred from one PF account to another PF account.
In the absence of a new PF account with the new employer, you will not be able to transfer your old PF balance.
In addition, there is no statutory mechanism for the employee to directly transfer the PF balance from a private trust to EPFO, especially where the current employer is not covered by the EPF scheme.
We have not checked the trust rules and therefore have not commented on the requirement of a squeeze-out in your case.
Also, since this question is from an investment perspective, you may want to consult a financial advisor.
Pursuant to Section 10(12) read together with Regulation 8 of Part A of the Fourth Schedule to the Income Tax Act 1961 (the Act), the accrued balance of the PF due and payable to the employee, i.e. the balance to his credit on the date of termination of his employment, is exempt from tax if he has rendered continuous service for a period of five years or more.
In this case, since your period of employment with the previous organization was more than 5 years, the total accrued balance to the extent payable to you upon termination of employment with the organization will be exempt from tax.
However, please note that any increase in the Provident Fund (PF) balance from the time you ceased to work with the previous organization (i.e. after the last day of work with the organization until ‘on the date of withdrawal), would be taxable in your hands.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG India.
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