EPF withdrawal before five years of continuous service is taxable. In case of EPF withdrawal after 5 years of continuous service, the amount withdrawn (both principal and interest) is exempt from tax
New Delhi: If you have quit your job or lost your job, you can withdraw your Employees’ Provident Fund (EPF) money even before the completion of five years. However, according to the income tax rules, such withdrawals are taxable. As per rules, an EPFO member can withdraw up to 75 per cent of the accumulated corpus after one month of being unemployed.
Earlier, one was not permitted to make a withdrawal post one month. If the individual remains unemployed for a tenure of 2 months or more, they are allowed to withdraw the remaining 25% and settle the PF amount completely. This means an unemployed person can withdraw 100% of their PF money after two months of being jobless.
According to an EPFO order, the requirement of 2 months of waiting period does not apply to women who resign from their job to get married. Subscribers who have crossed the age of 54 years are allowed to withdraw up to 90% of their PF balance at any time after crossing 54 years but within one year of retirement on superannuation, whichever is later.
EPF withdrawal before five years of continuous service is taxable. In case of EPF withdrawal after 5 years of continuous service, the amount withdrawn (both principal and interest) is exempt from tax. However, withdrawal made before 5 years is tax-free in below situations:
- Withdrawal made due to the ill health of the employee or discontinued business of the employer
- Withdrawal made for any other reason beyond the control of the employer is also exempt from tax
- Income Tax is not applicable on any advance availed under EPF Scheme.
- In withdrawal cases where either the amount is less than Rs 50,000 or the employer closing down the business, TDS is not levied.
- If the amount is more than Rs 50,000, and period of service is less than five years, the subscriber can submit Form 15G/15H to avoid TDS in cases where the income for that year is below the taxable limit
In case you have switched jobs and there are multiple employers and the provident fund (PF) balances are transferred to the PF account with the most recent employer, the cumulative period of employment with all the employers is required to be seen for the purpose of evaluating whether the employee has rendered continuous service for a period of five years or more.
If you withdraw from EPF before completing 5 years of continuous service, TDS will be deducted. In calculating 5 years of service, your tenure with the previous employer is also included. If you transfer your EPF balance from the old employer to a new employer and your total employment is 5 years or more, no TDS is deducted.
If you have rendered 5 years of service or more with your initial employer, you have already rendered a continuous period of service of 5 years. In case you worked with one employer for 4 years and then switched jobs and worked for second employer for 3 years, then assuming you transferred your PF balance of your initial employer to the second employer, continuous period of employment shall be more than five years for the purpose of evaluating the continuous period for your current employer as well, irrespective of the duration of your current employment.
Hence, as and when you withdraw the PF balance from your current employer (including amount transferred from your PF account with initial employer) on ceasing employment there, the same could be considered as tax-free.
It is worth adding that a fund that is not approved by the Commissioner of Income Tax, is considered an unrecognised provident fund (URPF). It may have been recognised by commissioner of provident fund or any other formal authority. However, for a fund to enjoy income tax benefits of a recognised provided fund (where withdrawals are exempt after 5 years) it must be approved by a commissioner of income tax.
If you are a member of URPF, your withdrawals are taxed, whether or not you have completed 5 years of service. Always check with your employer about the status of your EPF
