Want to withdraw money from Employee Provident Fund account? Its taxable if done before 5 years of service

  • An amount of 12 percent of your basic salary goes towards the Employees Provident Fund Organisation of India (EPFO)

  • An employee can withdraw his/her PF even when the work period is less than five years (60 months)

  • EPF also offers other benefits like using funds for equipment purchase in case of differently-abled and natural calamity damages, etc.

An amount of 12 percent of your basic salary goes towards the Employees Provident Fund Organisation of India (EPFO). A matching amount is contributed by the employer, too. The money deducted is given to the employee when the person is unable to work or when he/she retires.

Contribution towards an EPF account provides a benefit to individuals by way of a deduction under Section 80 C, says Archit Gupta, Founder and CEO, ClearTax. However, an employee can withdraw his/her PF even when the work period is less than five years (60 months). But do remember, income tax (TDS) is deducted. However, income tax will not be deducted on withdrawal of PF after five years of continuous service.  However, TDS is deducted at 10 percent if the member submits PAN in such cases. In case PAN is not submitted, then TDS at 34.608 percent is deducted. No Income Tax (TDS) is deducted in case the total balance is less than Rs 50,000.

How to withdraw your PF online? Read here.

Early withdrawal of PF is allowed under these circumstances

(i) Housing loan/Purchase of site/house/flat or for construction/addition alteration in existing house/repayment of housing loan: No document is required. New declaration form/utilisation certificate required earlier has been discontinued

(ii) Illness of member/family:

a) Certificate of doctor, and

b) Certificate by employer that ESIR facility is not available to the member may be submitted by the member

 Want to withdraw money from Employee Provident Fund account? Its taxable if done before 5 years of service

Reuters

(iii) Marriage of self/son/daughter/brother/sister: No document/marriage card is required

(iv) Post-matriculation education of children: No document is required

(v) Lockout or closure of factory/cut in supply of electricity: No document is required

(vi) Natural calamity: No document is required

(vii) Purchasing equipment by physically handicapped: Medical certificate is required

(viii) One year before retirement: 90 percent of total PF balance can be withdrawn. No document is required

(ix) Investment in No Income Tax (TDS) is deducted in case the total balance is less than Rs 50,000. : 90 percent of total PF balance can be transferred to LIC. No document is required.

2) No revenue stamp (Re 1) is required to be affixed by the member

3) Income Tax (TDS) is deducted if the service is less than five years (60 months). No Income Tax (TDS) is deducted in case the total balance is less than Rs 50,000. However, TDS is deducted at 10 percent if the mmber submits PAN in such cases. In case PAN is not submitted, then TDS at 34.608 percent is deducted.

4) The total service in the present establishment, as well as previous establishment, is counted and, therefore, it is advisable to merge all PF accounts

5) Pension withdrawal benefits can be availed only if the service is less than 10 years.

The following table will help you easily understand the taxability on withdrawal of EPF:

Sl No Scenario Taxability
1 Amount withdrawn is < Rs 50,000 before completion of 5 continuous years of service No TDS. However, If the individual falls under the taxable bracket, he has to offer such EPF withdrawal in his return of income
2 Amount withdrawn is > Rs 50,000 before completion of 5 years of continuous service TDS @ 10% if PAN is furnished;No TDS in case Form 15G/15H is furnished
3 Withdrawal of EPF after 5 years of continuous service No TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax
4 Transfer of PF from one account to another upon a change of job No TDS. Further, the individual need not offer the same in return of income as it is not taxable.
5 Before completion of 5 continuous years of service\ if employment is terminated due to employee’s ill health The business of the employer is discontinued or the reasons for withdrawal are beyond the employee’s control No TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax

 

Why early withdrawal of PF should be avoided

EPF also offers other benefits like using funds for equipment purchase in case of differently-abled and natural calamity damages, etc. which an employee can use at the time of need. A member also has an option to nominate family members to receive funds after his demise and should be aware that withdrawing funds after job change is legal only when you are jobless for at least two months. The primary goal of EPF is long term investment and it should be used only when it is the last option available for an employee.

Updated Date: Jul 24, 2019 15:18:24 IST