What is EPF?
EPF is a retirement benefit scheme available to all salaried employees in India. Both the employee and the employer contribute a fixed percentage of the employee’s basic salary and dearness allowance every month. The beauty of the EPF lies in its dual role – it acts as a savings tool that accumulates over your working years and as a safety net for retirement or unforeseen financial needs. The interest earned on the EPF contributions is also compounded, adding to the growth of your savings.
When Can You Withdraw EPF?
When it comes to withdrawing from your EPF account, specific rules govern how and when you can do it:
Age and Service Duration
You can withdraw the full EPF balance upon retirement or after reaching 58 years of age. Partial withdrawals are allowed after five years of continuous service, under certain conditions, like medical treatment, house purchase or construction, education or marriage of children, etc.
Early Withdrawals
If you withdraw from EPF before completing five years of continuous service, the amount becomes taxable. However, there are exceptions in cases like termination due to ill health, business discontinuity, or other reasons beyond your control.
Full Withdrawal
Full withdrawal is permitted under specific circumstances like retirement, migration for employment abroad, or if a female member resigns for marriage, childbirth, or pregnancy.
TDS on Withdrawal
Tax Deducted at Source (TDS) applies to early withdrawals that exceed ₹50,000. However, if PAN is furnished and Form 15G/15H (as applicable) is submitted, TDS can be avoided.
EPF Withdrawal Eligibility
| Reason for Withdrawal |
Eligibility Criteria |
Withdrawal Limit |
|---|
| Retirement |
At retirement or reaching 58 years of age |
Full EPF balance |
| Unemployment |
Unemployed for more than 2 months |
Full EPF balance |
| Marriage/Education |
After 7 years of service |
Up to 50% of employee’s share (inclusive of interest) |
| Medical Emergency |
No minimum service requirement |
Up to 6 times the monthly basic wage or total employee’s share, whichever is lower |
| Home Loan Repayment/Home Purchase/Construction |
After 5 years of service |
Up to 90% of the total PF balance |
| Before Retirement |
1 year before retirement (age 57) |
Up to 90% of the EPF balance |
| Partial Withdrawals for Specific Reasons |
Varies based on the reason and conditions met |
Varies depending on the reason and applicable rules |
Tax on EPF Withdrawal
It is important to have knowledge about income tax on PF withdrawal. This will help you make informed decisions about when and how to withdraw your funds, increase your tax liability, and avoid potential penalties.
Tax on EPF Withdrawal before 5 years
- Employer’s Contribution and Interest: Both the employer’s contribution and the interest earned on it are taxable.
- Employee’s Contribution: The employee’s contribution is also taxable if a tax deduction was claimed underSection 80C when the contribution was made.
- Interest on Employee’s Contribution: The interest earned on the employee’s contribution is taxable.
The withdrawn amount is added to your income and taxed as per the income tax slab.
Tax on EPF Withdrawal by Temporary Employee
- Employer’s Contribution and Interest: Taxable.
- Employee’s Contribution: Taxable if Section 80C benefits were availed.
- Interest on Employee’s Contribution: Taxable.
For temporary employees, if the service is less than five years, the withdrawal is taxable.
Tax on EPF Withdrawal from an Unrecognized EPF
- Employer’s Contribution and Interest: Taxable.
- Employee’s Contribution: Taxable if Section 80C benefits were claimed.
- Interest on Employee’s Contribution: Taxable.
Unrecognized funds are not approved by the Commissioner of Income Tax, hence fully taxable.
Tax on EPF Withdrawal after 5 years
- Employer’s Contribution and Interest: Not taxable.
- Employee’s Contribution: Not taxable.
- Interest on Employee’s Contribution: Not taxable.
Exemption also applies if service is terminated due to ill health, business closure, or uncontrollable reasons.
Rates of TDS
- Standard TDS on PF withdrawal: 10% if PAN is provided and the withdrawal amount exceeds ₹50,000.
- Without PAN: If PAN is not provided, TDS is deducted at the maximum marginal rate (usually 34.608%).
- Threshold Limit: No TDS is deducted if the withdrawal amount is less than ₹50,000.
- Form 15G/15H: Submission of Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) can prevent TDS if the total income is below the taxable limit.
Documents Needed for Withdrawing PF
To seamlessly withdraw money from your PF account, you’ll need the following documents:
Claim Form
A duly filled claim form is the foremost document to withdraw a partial or full amount from the PF.
ID Proof
PAN Card, Aadhaar Card, driving license, or any other government-issued document identity card.
Bank Account Details
Bank account statement or a cancelled cheque for account verification.
Proof of Reason for Withdrawal
The proof of withdrawal can be bills for medical treatment, admission cards for education, or receipts for other purposes.
UAN and Aadhaar Card
Your UAN should be linked with your Aadhaar Card.
Other Documents
Other documents may also be required as per the context of the reason for withdrawal.
Taxability Table on EPF Withdrawal
| Condition |
Tax on Withdrawal |
TDS Rate |
|---|
| Below ₹50,000 |
Tax-free |
Nil |
| Above ₹50,000 & service < 5 years |
Taxable |
10% with PAN, else higher |
| After 5 years of service |
Tax-free |
Nil |
| Medical emergencies |
Tax-free |
Nil |
Various EPF Withdrawal Tax Exempt Situations
EPF is one of the most promising financial investments through automatic monthly deductions. Moreover, there are various situations in which EPF withdrawals get exemptions from income tax filing. Such situations include:
Withdrawals After Retirement
EPF withdrawals after reaching the age of 58 years automatically become tax-exempt.
After 5 Years of Service
Continued service in the organization for 5 years also makes the amount from EPF withdrawal not subject to tax.
In case Emergency
EPF withdrawals made due to emergency situations, such as prolonged ill health, discontinuation of service, or any other reason, are exempted from tax.
Partial Withdrawals for Specific Reasons
Partial withdrawals from EPF for certain reasons, such as medical treatment, education, marriage, loan repayment, etc., are not subject to tax under specified conditions.
How to Calculate EPF Withdrawal Tax
- You can easily calculate the tax on PF withdrawal with a thorough understanding of your total income and the respective tax slabs. Below, you can find the comprehensive approach:
- Determine the Taxable Amount
- Add the amount from the EPF withdrawal to your total income of the year. This will help you determine the total taxable amount.
- Look for Tax Slab Rates
- Check out the current tax slab rates and determine which slab you fall into. This will help you calculate the payable tax.
- Deduct TDS
- If your employer has deducted the TDS from EPF, you can subtract the same amount from your payable tax calculated.
- Calculate the Net Payable Tax
- Once done, you’ll get the net payable tax to file the income tax return.
Criteria for Withdrawing Your EPF
There are certain criteria that you need to meet to be eligible for withholding your EPF. These criteria are:
Age and Duration of Service
Full EPF withdrawal is allowed upon retirement at the age of 58 years. However, you can make partial withdrawals throughout your service as per the purpose.
For Specific Purpose
You can also make partial withdrawals for various needs throughout your service. For medical treatment, there is no limit for service period; however, for education, marriage, etc., a minimum of 7 years of service period is required.
Documentations
To either make partial or full withdrawals, you need to submit all the necessary documents, such as UAN, PAN Card, proof of reason for withdrawal, etc.
Online/Offline Claim Form
To withdraw money from your EPF, you need to submit the claim form through the EPFO portal or can submit the physical form at the EPFO office.
EPF Withdrawal Following Job Termination
Termination of your job may be daunting and can affect your finances. Here’s what you need to know to withdraw your money following job termination:
Immediate Withdrawal
If you are unemployed for over a month, you can withdraw up to 75% of your total EPF account.
Complete Withdrawal
You can withdraw the rest of the 25% of the money from your EPF account after your unemployment period extends beyond 2 months.
Documents Required
To withdraw money from an EPF account after job termination, make sure to submit all the necessary documents along with the proof of unemployment.
Tax Implications
If your period of service is less than 5 years, you will be liable to pay tax as per the tax slab rates. However, if your job termination is due to ill health, your tax may be waived.
Withdrawing EPF before 5 Years
If you withdraw your money from your EPF account before 5 years of continued service, you may need to pay tax when you file your ITR. Here’s what you need to know:
Tax Implications
The total amount withdrawn shall be added to your total income for that financial year and will be taxed as per the tax slab rate.
Deduction of TDS
If your withdrawal amount exceeds ₹50,000, then tax deducted at source (TDS) at 10% will be applicable on the amount.
Exemptions
If you are withdrawing money for the purpose of medical treatment or any other reasons beyond your control, then you will be exempt from tax.
Form 15G/15H
If income is below the taxable limit, you can avoid paying TDS by submitting Form 15G for individuals below the age of 60 years and Form 15H for senior citizens above the age of 60 years.
Allowed Other Exemptions
There are various other scenarios where you can make EPF withdrawals with tax exemptions:
Partial Withdrawals for Specific Need
EPF withdrawals for marriage, purchase or construction of a house, or education are exempt from tax.
Transferring PF Account
The transfer of your EPF account from one employer to another is also not taxable.
Tax Benefits on Interests Earned
The interest that you earn on your EPF account is also exempt from tax. The only condition here is that your account should stay active.
Withdrawals after Retirement
Are you planning for retirement and wondering is PF withdrawal taxable on retirement? You should know that EPF withdrawals made after retirement from the service at the age of 58 years or later are exempt from tax.
Rate of TDS Deduction
If EPF withdrawal exceeds ₹50,000 before 5 years of service, TDS of 10% applies. If your total income is below the taxable limit, you can avoid TDS by submitting Form 15G (under 60 years) or Form 15H (60+ years).
How to Avoid TDS on EPF Withdrawal?
There are several instances where PF withdrawal taxability is generally exempted, which include:
After Completion of 5 Years of Service
Withdrawals after five continuous years of service are not subject to tax. This period includes service with previous employers if the EPF balance was transferred from the previous employer to the current one.
In Case of Employee’s Ill Health
Withdrawals due to the ill health of the employee, discontinuation of business, or any other reason beyond the employee’s control are exempt from tax.
Upon Retirement
Withdrawals made after reaching 58 years of age or upon retirement are tax-exempt.
Partial Withdrawals for Specific Purposes
Certain partial withdrawals from EPF for specific purposes, such as medical treatment, marriage, education, or home loan repayment, are exempt from tax and subject to certain conditions.
FAQs on Tax on PF Withdrawal
1
Is EPF withdrawal taxable if the amount is below a certain limit?
EPF withdrawals below ₹50,000 are generally tax-free, regardless of the number of years of service.
2
Can I withdraw my EPF balance if I move abroad permanently?
Yes, you can withdraw your entire EPF balance if you move abroad permanently. However, tax implications may apply based on your tenure of service.
3
Are EPF withdrawals taxed if used for medical emergencies?
No, PF withdrawal tax medical emergencies are generally tax-free, even if you haven’t completed five years of service.
4
Is interest on EPF withdrawal taxable?
Yes, the interest earned on your EPF contributions is generally taxable, but there are specific conditions and exemptions.
5
Are EPF withdrawals made after retirement taxable?
No, EPF withdrawals made after completing five years of continuous service, including those made after retirement, are generally tax-free.
