Income Tax Deduction on EPF Withdrawal: Rules, Rates, and Tips

Income Tax Deduction on EPF Withdrawal: Rules, Rates, and Tips

The Employees’ Provident Fund (EPF) is designed to provide long-term financial security to salaried employees in India. While EPF contributions offer tax benefits, withdrawing your EPF before completing 5 years of continuous service can attract tax deductions.

In this guide by IndiaLends, we’ll explain when EPF withdrawals are taxable, how TDS on EPF withdrawal works, and tips to avoid unnecessary tax outgo.

When is EPF Withdrawal Tax-Free?

EPF withdrawals are completely tax-free if:

• You have completed 5 years of continuous service (including service with previous employers if EPF was transferred, not withdrawn).
• The withdrawal is made after retirement.
• The withdrawal is due to illness, business closure, or other exceptions allowed by the Income Tax Act.

When is EPF Withdrawal Taxable?

Your EPF withdrawal becomes taxable if:

1. You withdraw before completing 5 years of continuous service.
2. The withdrawal amount exceeds ₹50,000.
3. You haven’t transferred your EPF balance to your new employer after changing jobs.

In such cases:

• Employer’s contribution and interest earned on it are taxed as income from salary.
• Employee’s own contribution (if claimed under Section 80C earlier) is taxed as income from salary.
• Interest on employee’s contribution is taxed as income from other sources.

TDS on EPF Withdrawal Before 5 Years

Here’s a quick reference table:

Note: No TDS if the withdrawal is due to illness, closure of company, or termination beyond your control.

How to Avoid TDS on EPF Withdrawal

• Transfer your EPF balance to your new employer instead of withdrawing.
• Wait until you complete 5 years of service.
• Ensure you submit Form 15G/15H if eligible to avoid TDS deduction.

Example of Tax Deduction on EPF Withdrawal

If you worked for 3 years and your total EPF balance is ₹2,00,000:

• Employer’s contribution + interest: ₹1,00,000 → Taxable as salary
• Employee’s contribution (claimed under 80C): ₹80,000 → Taxable as salary
• Interest on employee’s contribution: ₹20,000 → Taxable as other income
• TDS @10% if amount withdrawn ≥ ₹50,000 and PAN provided.

EPF Withdrawal vs Personal Loan

Withdrawing EPF early can reduce your retirement corpus and may trigger taxes. If you need funds urgently, a personal loan from IndiaLends can be a smarter alternative, offering quick disbursal without affecting your EPF savings.

Apply Now with IndiaLends

Frequently Asked Questions (FAQs)

Q1. Is EPF withdrawal after 5 years taxable?
No, it is completely tax-free if withdrawn after 5 years of continuous service.

Q2. How can I avoid TDS on EPF withdrawal?
Submit Form 15G/15H (if eligible) and ensure PAN is linked to your EPF account.

Q3. What happens if I withdraw EPF before 5 years?
It becomes taxable, and TDS will be deducted if withdrawal is ₹50,000 or more.

Q4. Is there TDS on EPF withdrawal of ₹40,000?
No TDS, but it will still be taxable if withdrawn before 5 years of service.

Q5. Can IndiaLends help me withdraw EPF?
IndiaLends does not process EPF withdrawals but can help you get instant personal loans to cover urgent needs without touching your EPF savings.