Provident Fund withdrawal taxability

Income Tax Exemption to withdrawal from provident fund

Under section 10(11) of the Income-tax Act, 1961 (‘the Act’) total exemption from tax is allowable on

 “ any payment from a provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies 1[or from any other provident fund set up by the Central Government and notified 2 by it in this behalf in the Official Gazette] “

Note :

1 Inserted by the Finance Act, 1968, w.e.f. 1-4-1969.

2 For notified public provident fund, see Notification No. SO 2430, dated 2-7-1968. which says :-

In pursuance of clause (11) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the Public Provident Fund established under the Public Provident Fund Scheme, 1968, as a provident fund to which the said clause shall apply

Income Tax Exemption to  accumulated balance due  and payable from recognised provident fund

Under section 10(12) of the Income-tax Act, 1961 (‘the Act’) total exemption from tax is allowable on

“the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule to the Act.”

Rule 8 of Part A of the Fourth Schedule to Recognised Provident Fund :-

Under this rule such accumulated balance is required to be excluded from the total income, subject to the following :

” The 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, though he has not rendered such continuous service, the service has been terminated by reason of the employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, or

(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer.

Explanation.—Where the accumulated balance due and becoming payable to an employee participating in a recognised provident fund maintained by his employer includes any amount transferred from his individual account in any other recognised provident fund or funds maintained by his former employer or employers, then, in computing the period of continuous service for the purposes of clause (i) or clause (ii) the period or periods for which such employee rendered continuous service under his former employer or employers aforesaid shall be included . “

In their letter No. F. No. 194/6/73-IT (AI) dated June 19, 1973, the CBDT has clarified that the expression ‘ termination of his employment ‘ used in section 10(10)(iii) would cover the case of any employee whose service comes to an end due to resignation