To discourage premature withdrawals from the Employee Provident Fund (EPF), the government has introduced Section 192A. According to this section, tax deducted at source (TDS) must be deducted from EPF withdrawals if certain conditions are met.
The Employees’ Provident Fund (EPF) is a savings plan for workers to help them save for retirement. Each month, 12% of an employee’s basic salary goes into the EPF account, and the employer also adds 12%. This money is saved for the future and can give tax benefits under Section 80C.
Employees can choose to save more than the minimum amount by contributing to the Voluntary Provident Fund (VPF).
If you take money out of your EPF account, you might have to pay taxes or TDS (Tax Deducted at Source). It’s important to understand how these taxes work when you withdraw your EPF funds.
Eligibility for EPF Withdrawal
To withdraw all your EPF money, you need to meet these conditions:
- Retirement: You can withdraw the full EPF balance when you retire at the age of 55.
- Before Retirement: You can take out 90% of your EPF money one year before retirement, after reaching 54 years old.
- Unemployment: You can withdraw 75% of your EPF if you are unemployed for one month. The rest of the money will be moved to your new job’s PF account.
- After Two Months of Unemployment: You can withdraw the entire EPF amount if you’re unemployed for two months.
- Without Employer’s Consent: You can withdraw your EPF money online if your Aadhar card is linked to your Universal Account Number (UAN) and your employer has approved it.
Reasons for Partial Withdrawal of EPF
You can withdraw part of your EPF money for certain reasons if you meet the conditions. These reasons include:
- Medical Expenses
- Marriage
- Education
- Buying Land or Building a House
- Repaying a Home Loan
- Renovating Your House
Taxation on EPF Withdrawal Explained
Your EPF payout has three parts:
- Employee’s Contribution: This is the money you put in. It’s not taxable. However, if you claimed tax benefits under Section 80C for this amount in the past, you may have to pay extra tax later as if section 80C benefits were not claimed by you for those years.
- Interest on Your Contribution: The interest earned on your contribution is taxed as income from other sources.
- Employer’s Contribution and Interest: The money your employer added, along with the interest, is fully taxable. It’s taxed as part of your salary. You’ll see this tax deducted in the “salary TDS” section of your Form 26AS.
Tax on EPF Withdrawal Before 5 Years of Service
If you withdraw your EPF before completing 5 years of continuous service, TDS (Tax Deducted at Source) will be charged. However, if the amount you’re withdrawing is less than Rs. 50,000, no TDS will be deducted.
When calculating the 5 years of service, your time with your previous employer also counts. So, if you transfer your EPF balance from an old job to a new job, and the total duration of your employment is 5 years or more, no TDS will be deducted.
Remember, the 5 years need to be completed exactly—there’s no extra time allowed if you’re short by a few days.
Tax on EPF Withdrawal for Temporary Employees
If you are hired on a temporary or contract basis, your employer is not required to contribute to your EPF.
However, if you are later made a permanent employee and the employer starts contributing to your EPF, but you resign after 5 years, the 5-year period for EPF calculation is based only on the time you spent as a permanent employee. It does not include the time you worked as a temporary employee.
So, if you worked as a permanent employee for less than 5 years, the 5-year condition for EPF withdrawal will not be met, and TDS may be deducted on your withdrawal.
Tax on EPF Withdrawal from an Unrecognised EPF
An “unrecognised provident fund” is a fund that hasn’t been officially approved by the Income Tax Commissioner. Even if the fund is recognised by other authorities, like the Provident Fund Commissioner, it must be approved by the Income Tax Commissioner to receive tax benefits.
For a provident fund to qualify for tax exemptions, it must be a “recognised provident fund.” This means if the fund is approved by the Income Tax Commissioner, withdrawals made after completing 5 years of service are typically tax-free.
However, if you’re a member of an unrecognised provident fund (URPF), the rules are different. Regardless of how long you’ve contributed to the fund—whether it’s 1 year, 3 years, or 10 years—any money you withdraw from the URPF will be taxed. There are no tax exemptions for unrecognised funds, even if you’ve been with the fund for over 5 years.
In short, withdrawals from an unrecognised provident fund will always be subject to tax, unlike recognised provident funds, where you can avoid tax after 5 years.
Tax on EPF Withdrawal After 5 Years
If an employee withdraws their EPF (Employees’ Provident Fund) balance after completing 5 years of continuous service, the withdrawal is exempt from tax.
This means you won’t have to pay any tax on the money you withdraw, as long as you’ve worked continuously for 5 years or more.
It’s important to note that the 5 years of service must be uninterrupted, meaning you can’t take breaks in between or switch jobs without meeting the continuous service requirement. If you leave before completing 5 years, the withdrawal may be taxed.
Rates of TDS on EPF Withdrawal
If you withdraw your EPF balance before completing 5 years of service and the amount is above Rs. 50,000, TDS (Tax Deducted at Source) will be deducted at the rate of 10%.
Here are some important points to keep in mind:
- PAN Requirement: You must provide your PAN (Permanent Account Number) at the time of withdrawal. If you don’t provide your PAN, TDS will be deducted at a higher rate of 20%.
- Form 15G/Form 15H: If your total income (including the EPF withdrawal) is below the taxable limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens). This will ensure that no TDS is deducted from your EPF balance, as it indicates that your total income is below the tax threshold.
Taxability on Withdrawal of EPF: A Quick Guide
The following table helps you understand the tax implications on EPF withdrawals based on different scenarios:
| Scenario | Taxability |
| Amount withdrawn is < Rs 50,000 before completion of 5 continuous years of service | No TDS. However, if the individual falls in the taxable bracket, the EPF withdrawal must be declared in the income tax return. |
| Amount withdrawn is > Rs 50,000 before completion of 5 years of continuous service | TDS @ 10% if PAN is provided. No TDS if Form 15G/15H is submitted. |
| Withdrawal of EPF after 5 years of continuous service | No TDS. Further, the withdrawal is exempt from tax, so it need not be reported in the income tax return. |
| Transfer of PF from one account to another upon change of job | No TDS. No need to declare in the income tax return as it is not taxable. |
| Withdrawal before 5 years of service due to employee’s ill health, employer’s business discontinuation, or other reasons beyond employee’s control | No TDS. The withdrawal is exempt from tax, and the individual need not declare it in the income tax return. |
Summary
- No TDS if the EPF amount is below Rs. 50,000 before 5 years of service or if the withdrawal is due to specific exempted conditions (like ill health).
- TDS is deducted at 10% for amounts above Rs. 50,000 before 5 years, provided PAN is given, or Form 15G/15H is submitted.
- No TDS after 5 years of service or if the EPF is transferred between accounts when changing jobs.
How to Avoid TDS on EPF Withdrawal
Here are some ways to avoid TDS on your EPF withdrawal:
- Transfer EPF When Changing Jobs: Instead of withdrawing the EPF balance when you change jobs, you can transfer it to your new employer’s EPF account. This way, the EPF balance continues to grow, and you avoid TDS.
- Complete 5 Years of Continuous Service: If you can keep your EPF account active for at least 5 years of continuous service, your withdrawal will be exempt from TDS. After 5 years, you won’t have to pay any TDS on the withdrawn amount, and it will also be exempt from income tax.
- Withdraw Less than Rs 50,000: If your EPF balance is less than Rs 50,000, no TDS will be deducted on the withdrawal, even if you withdraw it before completing 5 years of service.
Frequently Asked Questions (FAQs) on EPF Withdrawal and Taxation
Is it compulsory to be employed with one employer for 5 years to escape the tax liability on EPF withdrawals?
No, it’s not necessary to be employed with one employer for 5 years to avoid tax on EPF withdrawals. The continuous period of service is what matters, not the number of employers.
If you change jobs, you can transfer your EPF from your old employer to your new employer’s EPF account. As long as you maintain continuous service over multiple employers, the 5-year requirement is still met, and your EPF withdrawal will be exempt from tax.
In short: You can switch employers, but if your employment is continuous for 5 years (with transfers), you won’t face tax on your EPF withdrawal.
Where can I check the total TDS deducted on EPF?
You can check the total TDS (Tax Deducted at Source) taken from your EPF (Employee Provident Fund) by looking at Form 26AS. This form is linked to your PAN (Permanent Account Number) and can be accessed by logging into the income tax department’s website using your PAN.
Is TDS deducted on EPF withdrawal?
Yes, TDS is deducted if you withdraw your EPF before completing 5 years of continuous service and if the amount exceeds Rs. 50,000. The rate is 10% if you provide your PAN; otherwise, it is 20%.
When is EPF withdrawal exempt from tax?
EPF withdrawal is exempt from tax if:
- You have completed 5 years of continuous service.
- The EPF transfer occurs when changing jobs, and you don’t withdraw the funds.
- You submit Form 15G/15H if your total income (including EPF withdrawal) is below the taxable limit.
Can I avoid TDS on EPF withdrawal?
Yes, you can avoid TDS by:
- Transferring EPF to your new employer when changing jobs instead of withdrawing.
- Completing 5 years of continuous service to make the withdrawal tax-free.
- Withdrawing less than Rs. 50,000 as no TDS is applicable for withdrawals under this amount.
- Submitting Form 15G/15H if your total income is below the taxable limit.
What is the TDS rate if I don’t provide my PAN?
If you don’t give your PAN (Permanent Account Number) when you withdraw your EPF, the Tax Deducted at Source (TDS) rate will be 20%.
This means that 20% of your withdrawal amount will be taken as tax. Providing your PAN can help you avoid a higher tax rate.
What forms can I submit to avoid TDS on EPF withdrawal?
To avoid TDS on your EPF withdrawal, you can submit certain forms:
- Form 15G: This is for individuals under 60 years old. You can use this form if your total income, including the EPF withdrawal, is below the taxable limit.
- Form 15H: This is for senior citizens (60 years and older). It works similarly to Form 15G, allowing you to avoid TDS if your total income is below the taxable limit.
By submitting these forms, you can ensure that no TDS is deducted from your EPF withdrawal.
What happens if I withdraw EPF before 5 years of service?
If you withdraw your EPF before completing 5 years of continuous service, the amount is subject to TDS, unless the amount is below Rs. 50,000 or you qualify for an exemption due to specific conditions (like ill health, employer’s business discontinuation, etc.).
Is there TDS on EPF transfer?
No, when you transfer your EPF balance from one account to another because you changed jobs, there is no TDS (Tax Deducted at Source).
This means you won’t have any tax taken out during the transfer process. The money just moves from your old EPF account to your new one without any tax being applied.
Can I withdraw my EPF after 5 years without tax?
Yes, you can withdraw your EPF after working continuously for 5 years without any tax deductions.
This means that if you have been with your job for 5 years straight, when you take out your EPF money, you won’t have to pay TDS (Tax Deducted at Source) on it, and it won’t be taxed at all.
Is EPF withdrawal taxable if I leave due to ill health or other unavoidable circumstances?
If you withdraw your EPF due to reasons such as ill health or the discontinuation of your employer’s business, and you haven’t completed 5 years of service, the withdrawal is not taxable.
In this case, no TDS (Tax Deducted at Source) will be deducted. This means that you can withdraw your EPF funds without facing any tax implications, even if your service period is less than 5 years.
What happens if I don’t submit my PAN while withdrawing EPF?
If you don’t provide your PAN (Permanent Account Number) when withdrawing your EPF, TDS (Tax Deducted at Source) will be taken at a higher rate of 20%.
This means you’ll lose more money in taxes than if you had provided your PAN. It’s important to submit your PAN to ensure that the tax deducted is at a lower rate, which helps you keep more of your money.
