5 years time is very important for the rules regarding tax on withdrawals from the Provident Fund. Withdrawal before that is taxed, later withdrawals are not taxed.
After the budget announcement, there is a lot of discussion about Employee Provident Fund i.e. EPF. According to this discussion, you will tell about the tax on EPF today and how it will get relief from this tax (When PF is taxed), will also tell about that trick. First of all, know that investing in EPF provides the benefit of tax deduction under Section 80C. On withdrawal, it can be completely tax free, but there is a condition about it. Currently the interest rate on EPF is 8.5 percent and the interest income is completely tax free.
When talking about tax on EPF withdrawals, the time of 5 years becomes very important. If you have worked for five consecutive years, then there will be no tax on withdrawal from this retirement fund. During this time, even if you change the job, you can get relief in tax, but there should not be more than a month gap between two jobs. Also, it has to be kept in mind that you have to transfer the provident fund of the old employer to the new employer. With this, the contribution will continue in your PF account and it will be calculated together.
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What is the rule regarding tax
If you do not complete five years of service and want to withdraw from this fund before that, then tax will be levied. TDS will not be deducted for withdrawing less than 50 thousand, however it will be included in your income and tax will have to be paid according to the tax slab you fall into. 10 percent TDS is deducted for withdrawing more than 50 thousand. If you withdraw after completion of 5 years of service, then it is completely tax free. If the company is closed before five years, the health of the contributor worsens, in such a situation, there is no tax deducted for withdrawals even before 5 years.
What is the limit of 2.5 lakhs in the budget?
The tax was announced in the Budget 2021 regarding Employee Provident Fund. As stated earlier, the benefit of tax deduction under 80C for investing in PF, interest income is completely tax free and that amount is also tax free after withdrawal after five years. In the budget, Finance Minister Nirmala Sitharaman said that up to 2.5 lakh investment in EPF will be tax free in a financial year. Investing more than that will be taxed on interest earned on the additional amount. Till now the interest income was completely tax free.
