Contribution towards an EPF account provides certain benefits to the individuals by way of a deduction under Section 80 C. However, the EPF withdrawals are taxable under certain circumstances and exempt under certain circumstances.
When EPF is withdrawn before 5 years
When you are a temporary employee for some time
If you have been hired at a temporary position or you are on contract for a specific period. In such a situation, the employer is not liable to contribute to your EPF. However, once you become permanent, the employer will begin with your EPF contribution. If you resign before the completion of 5 years, the TDS will be deducted from your EPF withdrawal thereafter.
When your EPF is unrecognized
A fund that is not approved by the Income Tax Commissioner is considered as an unrecognized provident fund. If you are a member of an unrecognized provident fund, your withdrawals from the EPF account will be taxed, whether you have completed 5 years of service or not.
How are withdrawals taxed
The employee’s contribution – This is the amount that has been contributed by the employees in their EPF account. This portion of your withdrawal is not taxable. However, if you have claimed deduction under section 80C on your contribution in earlier years, you may have to pay additional tax, if 80C was not claimed by you for those years.
Interest on the employee’s contribution – This portion is taxed under the head income from other sources.
Employer’s contribution and interest earned on it– Employer’s contribution and interest earned on it is fully taxable. It is taxed under the head salary in your tax return. When TDS is deducted on it, you can see the entry under salary TDS in your Form 26AS.
Rates of TDS on EPF Withdrawal
TDS is deducted @ 10% on EPF balance if it is withdrawn before 5 years. Make sure to mention your PAN details at the time of withdrawal. If PAN details are not provided, TDS shall be deducted at the highest slab rate of 30%.
You can also submit Form 15G/15H if the tax on your total income including EPF withdrawal is NIL. TDS will not be deducted if you submit Form 15G/Form 15H.
A table on taxability on withdrawal of EPF
|Amount withdrawn is less than Rs. 50,000 before the completion of 5 continuous years of service ||No TDS is deducted. However, If the individual falls under the taxable bracket, he/she has to offer such EPF withdrawal in his return of income.|
|Amount withdrawn is above Rs. 50,000 before the completion of 5 years of continuous service ||TDS @ 10% if PAN is furnished; No TDS in case Form 15G/15H is furnished.|
|Withdrawal of EPF after 5 years of continuous service ||No TDS is deducted. Further, the individual is not required to offer such withdrawals in the return of income as it is exempt from tax.|
|Transfer of PF from one account to another upon a change of job ||No TDS is deducted. Further, the individual is not required to offer such withdrawals in the return of income as it is not taxable.|
|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 is deducted. Further, the individual is not required to offer such withdrawals in the return of income as it is exempt from tax.|