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Income Tax on EPF Withdrawal

The Employees Provident Fund (EPF) provides various benefits to individuals by way of deduction under Section 80C and is not considered taxable. However, in some cases it is taxable. To know in what circumstances it is taxable, continue reading the article.

Here are the cases where EPF is taxable:-

  1. Where EPF is withdrawn before 5 years

If an individual withdraws a sum from EPF before the completion period of 5 years of continuous service then, TDS will be deducted. The previous employment shall also be taken into consideration while calculating 5 years of service.

In the case where the total employment period is 5 years or more and where the transfer of EPF balance is made from the old employer to a new employer then, in that situation the TDS i.e. Tax Deducted at Source shall not be deducted.

For availing the exemption provided under the Income Tax Act, it is necessary to calculate the exact 5 years as there is no grace period given in case of short by a few days.

  1. Temporary Employment for some part of 5 years

Where a person is employed for a temporary period or on a contract basis at the initial stage and later on brought on permanent roll/employment and given the EPF benefit. And resign from the employment after completion of 5 years. So, In that case the period includes the months when you were not on permanent rolls and for that reason the employer shall deduct TDS from your EPF due to the reason that 5 years are not completed.

  1. Your EPF is an unrecognized EPF

In order to get the exemption provided by Income Tax, it is necessary that the fund must be approved by the Commissioner of Income Tax. As the fund that is not approved by the Commissioner of Income Tax is considered as an unrecognized provident fund.

Also, one must note that you are a member of URPF then, your withdrawal shall be taxable. No matter whether you have completed 5 years of service or not.

{As per the EPF Update, the EPFO gives an Interest rate of 8.1% to subscribers of the Employees Provident Fund for 2021-22. It was the lowest interest rate since 1977-78 when the EPF interest was 8%.}

All of the cases mentioned above are the ones where the EPF withdrawal shall be taxable and no exemption shall be granted.

But worry not, EAdvisors are here to help you to guide some ways to avoid TDS on EPF Withdrawal.

  • At the time of change of job, if you do not withdraw the EPF amount and transfer it to the new account at your company then, TDS can be avoided.
  • If you can try to avoid withdrawing funds from your EPF account for five years then, the TDS shall not be attracted.
  • And where the amount of withdrawal from TDS is less than Rs. 50,000 then also TDS shall not be deducted. As, TDS is deducted when amount of withdrawal is more than Rs. 50,000.

 Rate of TDS

The rate of TDS deducted is @10% on EPF withdrawal where the withdrawal is made before the completion of 5 years of service.

Note:- PAN Card is an essential document that is to be mentioned at the time of withdrawal. If a person is not having a PAN Card then a higher slab rate of 30% shall be taxable. So, it is advised by our EAdvisors team to have a PAN Card.

You can submit Form 15G/ Form 15H if tax on the total income of an individual including EPF withdrawal is NIL. And then, your TDS shall not be deducted.

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