Late transfer of dues in EPF has no effect on taxability of accumulated balance

When you decide to withdraw the funds in future, if the cumulative period of employment exceeds five years, the accumulated balance to the extent payable to you at the time of ceasing your employment with the last employer shall be exempt from tax

I started working at an organization in April 2015. My previous employer diligently deposited money in my Employees’ Provident Fund (EPF) account every month. I had left the organization I worked at earlier on 20 October 2018 and joined the new one on 5 November 2018. Due to some bank-related issues, my salary from the new employer was delayed by a month, and I ended up receiving the lump sum only in December 2018. Meanwhile, since I had switched jobs, the funds from my earlier EPF account got transferred to the new one in March 2019. As my salary was delayed, the funds in my EPF account were also deposited late. Will the delay be considered as a break in employment if I decide to withdraw funds from my EPF account at some point in the future? Please explain from the taxation perspective.

From a tax perspective, as per Section 10(12) read with Rule 8 of Part A of Fourth Schedule of the Income-tax Act, 1961 (the Act), the accumulated PF balance due and payable to you, that is, the balance to your credit on the date of cessation of your employment, is exempt from tax if you have rendered continuous service for a period of five years or more.

In cases like yours, where there are multiple employers and the accumulated EPF balances with previous employer(s) are transferred to the EPF account with the last employer, the cumulative period of employment with all the employers are required to be considered for the purpose of evaluating whether or not the employee has rendered continuous service for a period of five years or more.

In your case, when you decide to withdraw the funds in future, if the cumulative period of employment exceeds five years, the accumulated balance to the extent payable to you at the time of ceasing your employment with the last employer shall be exempt from tax. However, any accretions to such balance, thereafter, would be taxable in your hands, as upheld in recent judicial precedents.

The fact that your salary receipt was delayed by one month and that consequently your accumulated PF balance was transferred later will not have any impact on the taxability of the accumulated EPF amount in your hands at the time of withdrawal.

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