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Home > Categories > Finance and Insurance > Income Tax > View Advice  

Query from: Pradeep Kumar, India, 07/07/08
Topic: INCOME TAX      Submitted on:
Subject: Income tax on Contributory Provident fund

I am a member of CPF with an organization. If after two years of service I quit the organization and go for self business. Will the amount due to CPF be considered as a Income for that year. If yes, how the Income tax will be calculated. How much amount will be taxable.

Rate = 2.5 (Rated by 4 Council Members)
[ This query closed ]
Response from: buddy Pooh,   
Council Member on
Dear Pradeep,

Since you are withdrwing the provident it is taxable at the rate as applicable based upon your income.The income tax rule for PF is as under:-

This fund is one which is recognised by the Commissioner of Income-tax in accordance with the rules contained in Part A of the Fourth Schedule to the Income-tax Act. Such provident funds are generally maintained by the private sector organizations.

Under section 10(12), the accumulated balance due to an employee participating in a recognised provident fund is exempt to the extent indicated under Rule 8 of Part A of the Fourth Schedule to the Act. This rule specifies that to avail the exemption.

the employee should have rendered continuous service with his employer for 5 years or more; or if he has not rendered such service, it should have been terminated by reasons beyond his control; or if he has found another employment, the balance due to him should have been transferred to his account in the recognised provident fund of the new employer. In so far as the employer's annual contribution to such a fund is concerned, it shall be deemed to be income and taxed under the head "salaries" in the hands of the employee.

if it exceeds 10% of the salary; or if interest paid on the balance to the credit of the employee exceeds the rate notified by the Central Government. The Government had fixed the rate of interest at 12% w.e.f. 1.4.1986 for the purpose of this provision. The employee's own contributions to the extent of one-fifth of salary are eligible for tax relief u/s 88 with effect from the assessment year 1991-92 without any limit as to the amount of contribution. For these purposes (both for purposes of the employee's as well as the employer's contribution), the term 'salary' includes dearness allowance if the conditions of service so provide but excludes all other allowances and perquisites.

Since you are starting your own business and your Pf account is not transferred to another company account.It is taxable.

Rate = 3 (Rated by 2 Council Members)

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Response from: Geetha Gopakumar,   
Council Member on
Source: This information comes from my own knowledge.
No there is no CPF if you quit the organization and doing self business. When the amount due to CPF is remitted it will be considered for Income assessment. until then in now way it isn't an income for the year.

Rate = 1.5 (Rated by 2 Council Members)

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