EPF Withdrawal Rules- If you withdraw money before five years, you will have to pay tax. You will have to pay this tax in the year in which you have withdrawn the capital from the PF account.
EPF Withdrawal: It is necessary for a company which employs 20 or more employees to be registered with the Employees’ Provident Fund Organization (EPFO). This is the reason why the PF account of most of the people working in the organized sector is deducted. When a person starts a job, he gets a Universal Account Number (UAN) from EPFO. Your employer opens a PF account under this UAN, both you and your company contribute to it every month. Many employees believe that there is no tax to be paid on withdrawal of money from EPF account. But, this is not completely true. In some circumstances you may have to pay tax on withdrawals.
If you withdraw the amount after contributing to EPF for five years, then the EPF account holder does not have to pay any tax. Now, it does not matter whether you have worked in one company or more than one in these 5 years. But, if you have not worked for 5 years and withdraw the amount deposited in the account, then you will have to pay tax. Yes, under certain circumstances, tax exemption is available even on withdrawal before five years. Such as the employee losing his job due to poor health, closure of the employer’s business or other reasons for which he is not at all responsible.
When will tax have to be paid?
If you withdraw money before five years, you will have to pay tax. You will have to pay this tax in the year in which you have withdrawn capital from the PF account. Suppose someone started depositing in PF in 2021-22 and wants to withdraw the amount deposited in EPF in 2024-25, then he will have to pay tax in the year 2024-25. Tax will be calculated as per the tax slab applicable on your total income in the year in which you contribute to PF. The amount deposited in PF has four parts, employee’s contribution, employer’s contribution, interest on employer’s contribution and interest on employee’s contribution. If the amount deposited in PF is withdrawn before 5 years, tax is levied on all the four parts.
This is the mathematics of tax liability
What is worth noting here is that the tax liability on employee’s contribution mainly depends on two things. If the employee avails the benefit of deduction under 80C on his contribution, then his contribution will be taxable. His contribution will be considered part of the salary. But if the benefit of deduction under 80C is not availed, the employee’s contribution will not come under the ambit of tax. The employer’s contribution and the interest received on it are considered part of the salary.
How much TDS will be deducted?
If withdrawal is made before 5 years then it becomes taxable. If money is withdrawn from the provident fund before 5 years and the subscriber’s PAN card is not linked, then 20 percent will be deducted. Whereas if your PF account is linked to PAN then TDS will be deducted at 10 percent. If the amount deposited in EPF is less than Rs 50 thousand then you will not have to pay TDS. If your income is less than the taxable limit then you can avoid TDS by submitting Form 15G or 15H.
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