Over the years, the process of withdrawal of provident fund balance by an employee has been made simpler by the Employees’ Provident Fund Organization (EPFO). The members of EPFO can apply for PF withdrawal online, and the money gets credited to the member’s account within a reasonable timeframe. In this article, you will gain an insight of TDS implications on withdrawal of money from EPF (or what percentage of tax on PF withdrawal is charged). <\/p>\n\n\n\n
Enacted in the year 1952, EPF acts as an effective tool for individuals to accumulate their savings for meeting retirement benefits. To ensure that investment towards PF is spurred, the EPFO effected that employees having 5 years of service are eligible for tax-free withdrawal from PF accounts. Also, an additional advantage is that contributions to the Employee Provident Fund<\/a> are tax-deductible under Section 80C. However, employees withdrawing money before the completion of 5 years of service are subject to income tax on PF withdrawal if certain specified criterion is not met. To line-up the aforesaid points together, it can be said that tax on PF withdrawal is levied under certain situations, while the same is exempt under some other situations. According to EPFO rules, up to 75% of the accumulated EPF corpus can be withdrawn by employees after one month of exiting from a job. The remaining 25% may be withdrawn after unemployment for more than two months. The EPF corpus is divided into four parts, namely employer’s contribution, employee’s contribution, interest earned on the employer’s contribution and interest earned on employee’s contribution. <\/p>\n\n\n\n On EPF withdrawal<\/strong>:<\/p>\n\n\n\n Our Recommendation: Income Tax Changes to be expected in Budget 2020-2021<\/a><\/em><\/strong><\/p>\n\n\n\n The provisions of the tax deduction on PF withdrawal are as follows:<\/p>\n\n\n\n Amount of withdrawal<\/strong><\/p>\n<\/td>\n Service Period<\/strong><\/p>\n<\/td>\n Other conditions<\/strong><\/p>\n<\/td>\n Rates of TDS<\/strong><\/p>\n<\/td>\n<\/tr>\n Employee EPF withdrawal <Rs. 50,000<\/p>\n<\/td>\n After any no. of years of service<\/p>\n<\/td>\n N\/A<\/p>\n<\/td>\n No TDS<\/p>\n<\/td>\n<\/tr>\n Employee EPF withdrawal >= Rs. 50,000<\/p>\n<\/td>\n After 5 years of service<\/p>\n<\/td>\n N\/A<\/p>\n<\/td>\n No TDS<\/p>\n<\/td>\n<\/tr>\n Employee EPF withdrawal >= Rs. 50,000<\/p>\n<\/td>\n Before 5 years of service<\/p>\n<\/td>\n Transfer\/Termination of service (ill-health\/ closure\/cause beyond the control of the employee)<\/p>\n<\/td>\n No TDS<\/p>\n<\/td>\n<\/tr>\n Employee EPF withdrawal >= Rs. 50,000<\/p>\n<\/td>\n Before 5 years of service<\/p>\n<\/td>\n PAN submitted; Form 15G\/15H submitted<\/p>\n<\/td>\n No TDS<\/p>\n<\/td>\n<\/tr>\n Employee EPF withdrawal >= Rs. 50,000<\/p>\n<\/td>\n Before 5 years of service<\/p>\n<\/td>\n PAN submitted; Form 15G\/15H not submitted<\/p>\n<\/td>\n TDS<\/p>\n @10%<\/p>\n<\/td>\n<\/tr>\n Employee EPF withdrawal >= Rs. 50,000<\/p>\n<\/td>\n Before 5 years of service<\/p>\n<\/td>\n PAN not submitted<\/p>\n<\/td>\n TDS @34.608%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n No TDS\/tax on PF withdrawal is deducted in the following cases:<\/p>\n\n\n\n On the other hand, TDS\/tax on PF withdrawal is deducted in the following cases:<\/p>\n\n\n\n Here, TDS is to be deducted @ 10%.<\/strong><\/p>\n\n\n\n (Form 15G\/15H is a self-declaration form which is furnished to avoid TDS in cases where the income for a particular year is below the taxable limit, i.e., tax on total income including EPF withdrawal is nil. If such form is not submitted, then the taxpayer will have to claim a refund of TDS at the time of filing ITR at the end of FY, unless his income does not exceed the maximum taxable limit.)<\/p>\n\n\n\n Here, TDS is to be deducted @ maximum marginal rate of 34.608%.<\/strong> Tax on PF Withdrawal after 5 years<\/strong>: After the completion of 5 years of continuous contributions towards the EPF, an employee is legally allowed to make a withdrawal which is not subject to TDS. Therefore, unless otherwise required, one should make an endeavor to allow EPF contributions to accumulate in one’s PF account since the accrued interest on the standing PF balance is tax-free.<\/p>\n\n\n\n
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<\/p>\n\n\n\nWhich portion of withdrawals is taxed?<\/strong><\/h2>\n\n\n\n
Detailed regulations of Tax on PF Withdrawal<\/strong><\/h2>\n\n\n\n
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<\/p>\n\n\n\nFew key fundamentals <\/strong><\/h2>\n\n\n\n
Takeaway<\/strong><\/h2>\n\n\n\n
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