Has EPFO put any bar on private PF trusts?

I have been a member of the employee provident fund (EPF) for the past 16 years. My current organization, which I am now quitting after more than three years, has a private PF Trust. I will be joining a new company which is part of the EPFO.

My current employer claims that the EPFO has stopped accepting funds from private trusts. Is this right? If I was to withdraw the entire proceeds from my PF account, will it be subject to tax deducted at source (TDS)? Can my current company, being a private trust, also stop paying interest in the next three months?

—Name withheld on request

We will not be able to comment on the specific positions taken by the EPFO with regard to your organization.

As per the provisions of the EPF scheme, an individual can transfer the accumulated balance from his EPF account held with the erstwhile employer to that at a new employer, irrespective of the fact that the previous or new account is an approved PF trust or held with the EPFO.

As per rules, the accumulated PF balance due and payable to the employee, as on the date of cessation of his employment, is exempt from tax if an employee has rendered continuous service (including the period of past membership with previous employers) for a period of five years or more. Any interest accruals post cessation of employment will not be tax exempt.

Accordingly, if the accumulated balance with your erstwhile employers had been transferred to the PF Trust of your existing employer, the period of contributory service hitherto would also be added to the period of continuous service.

Further, in case you are able to transfer the balance held in your current PF account with the PF Trust to the PF account of your new employer, the same shall also be added to your period of continuous service. In such a case, as your aggregate period of continuous service will be more than 5 years, the entire accumulated balance to the extent specified should be exempt from tax at the time of withdrawal.

A PF member may withdraw the full amount standing to his credit in the fund only on ceasing to be an employee in any establishment to which the PF Act applies, provided that he has not been employed in any covered establishment for a continuous period of not less than two months immediately preceding the date on which he makes an application for withdrawal.

A PF account becomes inoperative and does not earn further interest, where an employee retires from service after attaining the age of 55 years or migrates abroad permanently or dies and does not apply for withdrawal of his accumulated balance, within 36 months from the date it becomes payable. Until such time, interest will continue to accrue on the PF balance (whether in a PF Trust or with EPFO).

Thus, depending on your age and specific facts, exact implications would need to be evaluated.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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