Subscribers to the Employee Provident Fund (EPF) will receive an interest rate of 8.1 percent in 2021-22, according to the EPFO. Individuals can benefit from contributions to an EPF account by claiming a deduction under Section 80C. (see how here). It would also be useful to know what income tax or TDS implications an EPF withdrawal would have. Let’s have a quick look at “What is EPF? And it’s eligibility Criteria”, before moving further with the Income Tax on EPF Withdrawal.
The Employees Provident Fund and Miscellaneous Act of 1952 established the PF (Provident Fund) or EPF scheme. The Employee Provident Fund Organization establishes all the rules and regulations. The Ministry of Labour and Employment oversees the EPFO’s operations.
In other words, The employee Provident Fund is a fund whose objective is to offer lump-sum payments to employees upon their departure from their place of employment. This is in contrast to a pension fund, which includes both lump sum and monthly pension payments. Employees contribute a portion of their monthly pay to the EPF scheme.
It is a great way for employees to save a percentage of their salary that will come in handy in the event of an emergency or when they retire. EPFO registration is needed by law for employers with more than 20 employees.
If you leave the EPF before completing 5 years of continuous service, TDS (Tax Deducted at Source) will be deducted. When calculating 5 years of service, your previous employer’s term is also taken into account. No TDS is deducted if you transfer your EPF amount from an old employer to a new employer and have worked for the new employer for at least 5 years. Remember that you must compute the exact 5 years; if you are off by a few days, you will be penalized.
During this time, you are not on permanent payroll, and your employer is not compelled to contribute to your EPF. After a period of time, you are placed on the payroll, and your employer begins contributing to your EPF. After five years, you decide to resign. However, because this period includes months when you were not on the payroll, your employer will charge TDS from your EPF withdrawal because the 5-year period is not complete.
When Commissioner of Income Tax Department does not approve certain funds at that time it is considered as an Unrecognized PF (Provident Fund). It could have been acknowledged by the commissioner of provident funds or another formal body. However, in order for a fund to enjoy the income tax benefits of a recognized supplied fund (withdrawals are tax-free after 5 years), it must be certified by an income tax commissioner. If you are a member of the URPF, whether or not you have completed 5 years of service, your withdrawals are taxed. Our recommendation is to inquire about the status of your EPF with your employer.
Scenario |
Tax on EPF Withdrawal |
Before completing 5 years of continuous service, a sum of INR 50,000 was deducted. |
There is no TDS deduction, but if the individual is in the taxable category, he must report the EPF withdrawal on his tax return. |
Before completing 5 years of continuous service, a sum of more than INR 50,000 is deducted. |
If a PAN is provided, TDS will be deducted at a rate of 10%; if a Form 15G/15H is provided, no TDS will be deducted. |
After 5 years of continuous service, the EPF is withdrawn. |
There is no TDS deduction. Furthermore, the individual is not required to provide the same in return of income because the withdrawal is tax-free. |
Transferring PF from one account to another while changing jobs. |
No TDS is deducted. Furthermore, because the money is not taxable, the individual is not required to provide the same in return. |
If an employee’s employment is terminated before completing 5 years of continuous service owing to illness, the employer’s business is ended, and the reasons for the withdrawal are beyond the employee’s control. |
TDS-free. Furthermore, because the withdrawal is tax-free, the individual is not required to provide the same in return of income. |
When there is an income from other source at that time this portion is Taxable.
The employer’s contribution, as well as the income earned on it, is completely taxable. In your tax return, it is taxed as a head salary. You’ll probably see an entry under salary TDS in your Form 26AS for it if TDS is deducted on it.
This is the amount you have put into your EPF. This part of your withdrawal is not subject to taxation. However, if you claimed a deduction for your contribution under section 80C in previous years, you maybe required to pay additional tax as if you had not claimed 80C for those years.
If an EPF balance is removed before 5 years, TDS is deducted at a rate of 10%. Ensure to provide your PAN when making a withdrawal. TDS will be deducted at the highest slab rate of 30% if PAN information are not given. If your total income, including EPF withdrawals, is NIL, you can also file Form 15G/15H. If you submit Form 15G/Form 15H, no TDS (Tax Deducted at Source) will be deducted.
Compliance Calendar for the Month of August 2025 As we step into August 2025, it’s important for businesses, professionals, and…
LUT Renewal FY 2025-26: GST Exporter's Checklist Introduction If you're an exporter in India, you need to submit a Letter…
Cross-Border Compliance: Global Business Regulations Introduction Taking your business international can open exciting opportunities. But with that growth comes the…
Penalties from Non-Compliance in OPC Annual Filing Introduction An One Person Company (OPC) is a type of business in India…
Comply with FDI Norms During Registration Introduction If you're planning to register a business in India with foreign investment, it's…
USA-Registered LLC Penalties Despite No Activity Introduction Just because your US LLC hasn’t started doing business doesn’t mean you can…
Leave a Comment