According to the EPF rules, employees first need to fulfill certain conditions before withdrawing their PF funds.
The Employees’ Provident Fund is one of the most popular retirement fund options available for salaried employees in India. As a part of this, employees contribute 12 per cent of their basic salary, and an equal contribution is also made from the employer’s end towards their EPF accounts.
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The contributions are accumulated over time and can be withdrawn upon the employee’s retirement, along with the accumulated interest. However, just like other income, earnings from EPF accounts are also taxable under various circumstances.
Read on to learn about the income tax or TDS implications upon PF withdrawal.
According to the EPF rules, employees first need to fulfill certain conditions before withdrawing their PF funds. Also, there are certain conditions that must be met in the case of premature withdrawal.
– The entire PF amount can be withdrawn only upon attaining the retirement age, which has been fixed at 55 years by the EPFO.
– An employee can also withdraw 90 per cent of the PF funds one year before retirement.
– The person can withdraw 75 per cent of the PF funds after one month of unemployment and the entire PF amount after two months of unemployment.
These rules provide employees with options to access their PF funds for various purposes, including financial emergencies and major life events. It’s important to note that the specific conditions and documentation requirements for withdrawal may vary, so individuals should contact their employer or the EPFO for detailed guidance on the withdrawal process.
Taxation on PF withdrawal
– Now coming to the taxation part, contributions made by the employees to their EPF account are not generally taxable; however, one can claim a deduction under Section 80C on contributions in earlier years. In this case, he/she might need to pay additional tax if 80C was not claimed in those years.
– The interest received on the employees’ contributions is generally taxable as income from other sources.
– The contribution made by the employer and the generated interest on it is completely taxable under the head of salary in the tax return.
In another scenario, if an employee decides to withdraw his PF funds before completing 5 years of continuous service with one or more organisations, TDS will be deducted. However, there is an extension if the amount is less than Rs 50,000.
On the other hand, the EPF withdrawal is exempt from taxes if the employee withdraws the amount after 5 years of continuous service. While calculating the mandatory ‘5 years of service’, the tenure with the previous employers is also included if the employee has transferred his EPF balance from the old employer to the new one.
