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Explained: Is EPF withdrawal taxable if service is not for 5 years continuously?

The Financial Express logo The Financial Express 14-02-2018 Suraj Nangia

I received my EPF dues from my previous employer of 34years which were tax free. After a break of a couple of years, I joined another company at the age of 60 years. After serving as a regular employee for three years and eleven months, the company reappointed me on a full-term contract for one year. The company has paid the PF accumulation after deducting tax at source. So, is the PF taxable in my case? Also, am I entitled to get gratuity for serving four years and eleven months?

- Vijay Rao

EPF withdrawal is taxable if service is not rendered continuously for at least five years. Similarly, gratuity is given to the employee once he has completed at least five years of continuous service. Assuming that your reappointment was not under a contract of employment as a regular employee, your period of employment shall be only three years and eleven months. Hence, you shall not be entitled to payment of gratuity and even your PF withdrawal shall be taxable, since you have not been in continuous employment with the company for five years.

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I have sold my house that was built by my father in 1964. How much tax do I have to pay when I sell my house?

- Manoj Jain

Whenever a property is sold in India, the seller makes capital gains which are taxed as income in his/her hands. For computation of long term capital gains, indexed cost of acquisition, indexed cost of improvement and expenditure incurred wholly and exclusively in connection with transfer (like brokerage, commission, advertisement, expenses, etc.) are subtracted from the sale consideration. The capital gains so computed are then charged to tax at applicable rates (presently 20%). In order to reduce the tax burden, the amount of capital gains (arising on the sale of property held for more than two years) may be reinvested in specific assets or schemes within the prescribed time limit. For example, one may, within a period of one year before or two years after the date of sale of house property, invest the capital gains to purchase, or within a period of three years after that date construct, one residential house in India to reduce the tax burden. The capital gains may even be invested in the prescribed bonds within a prescribed period to reduce tax outgo.

The writer is partner, Nangia & Co LLP.

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