Rule 299: Tax treatment of PF balances when recognition is withdrawn
Rule 299 protects balances built up while a provident fund was recognised. If recognition is withdrawn, the balance to each employee's credit at the end of the financial year before withdrawal is paid to him free of tax when he receives the accumulated balance, subject to paragraph 9 of Part A of Schedule XI. The remaining balance is taxed as if the fund had never been recognised. Rules 292 to 300 deal with recognised provident funds under Part A of Schedule XI to the Act.
Official notified Income-tax Rules, 2026Need advice on Rule 299?
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Bare law
Rule 299 - Exemption from tax when recognition withdrawn
If the approving authority withdraws recognition from a provident fund, the balance to the credit of each employee at the end of the financial year before the withdrawal of recognition shall, subject to the provisions of paragraph 9 of Part A of Schedule XI to the Act, be paid to him free of tax at the time when such employee receives the accumulated balance due to him, and the remaining accumulated balance due to him shall be subject to tax as if the fund had never been recognised.
Rule breakdown
Two parts
Balance at the end of the financial year before withdrawal: free of tax when received, subject to paragraph 9 of Part A of Schedule XI.
Remaining accumulated balance: taxed as if the fund had never been recognised.
Key takeaways
Protected balance
Balance up to the year before withdrawal is tax-free.
Rest taxed
Later accumulation is taxed as unrecognised.
Subject to paragraph 9
Paragraph 9 of Part A of Schedule XI applies.
Practical checklist
- Ask the trustees for the balance at the end of the year before withdrawal.
Avoid
- Do not assume the whole balance is tax-free.
FAQs
Is my old PF balance taxed when recognition is withdrawn?
The balance at the end of the financial year before withdrawal is paid free of tax, subject to paragraph 9 of Part A of Schedule XI (Rule 299).
What about later accruals?
They are taxed as if the fund had never been recognised.
When does the tax-free payment happen?
When the employee receives the accumulated balance.
Glossary
- Accumulated balance
- The total amount due to the employee from the fund.
- Paragraph 9
- Paragraph 9 of Part A of Schedule XI, to which the tax-free payment is subject.