When you take up a new job, should you transfer your PF amount from your former employer to the new company or should you simply withdraw the amount? How does it impact your tax outgo? wealth solves this reader's query.
I worked in a nationalised bank for three and a half years (till March 2008). In April 2008, I joined another nationalised bank.
Do I have to pay tax on the provident fund (PF) I got from my earlier company? Is it true that the PF amount transferred from old to new organisation is not taxable? Also, If I deposit all PF amount into my Public Provident Fund (PPF) account, will the PF amount still be added to my gross income? The total PF amount will be around Rs 55,000.
-Manish Dev Jaiswal
I am assuming that both the PF accounts (that of your former and present employer) are Government recognised. Now, the tax treatment will differ based on whether you transfer the amount to your new employer or withdraw the amount.
Case 1: If you transfer
Here, you will not have to pay tax on the amount that you transfer from one company's PF to the other company's PF.
Case 2: If you withdraw
If the PF account has been in force for five years (from the date of opening), then you don't have to pay tax on withdrawal. In your case, the amount, if withdrawn, will be treated as taxable income in your hands, because you have not completed five years of employment with the bank which you quit in March 2008. Therefore, even if you deposit the PF amount into PPF account, you will have to pay tax.
Smart tip: You can transfer the PF balance to the new employer’s PF account and continue to enjoy the tax benefits.
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