The Employees’ Provident Fund is a popular investment scheme for salaried persons in India. The PF scheme is administered by EPFO, a statutory body under the Ministry of Labour and Employment, Government of India. In this post, let us take a look at certain scenarios with regards to tax on EPF withdrawal.
Table of Contents
What is PF (Provident fund)?
Provident Fund is a mandatory, government-managed retirement savings scheme in India. Under this scheme, an employee contributes a portion of his/her salary to the provident fund and an equal amount of contribution is paid by his/her employer.
An employee can withdraw PF at the time of retirement, or end of employment. He/she can also withdraw it during the service for some specific reasons. Here is a look at certain scenarios when your EPF withdrawal taxable or not.
Tax on PF Withdrawal
The following scenarios will help you easily understand the taxability of on EPF withdrawal.
Income Tax on PF withdrawal after 5 years of continuous service
If you withdraw PF after completion of five years of continuous service, then the amount withdrawn (both principal and interest) is tax-free. It means there is no TDS on EPF withdrawal. Also no need to mention this amount in your income tax return as it is exempt from tax.
Transfer of PF to another account after a job change
In case of a job change, if PF is transferred to another account then there is no TDS is levied. Also, you do not need to mention this amount in your ITR as it is not taxable. Therefore, it is always advisable to transfer the provident fund balance while switching jobs.
Tax on PF withdrawal before 5 years when you withdraw less than Rs.50,000
There is no TDS on PF withdrawal before 5 years if the amount is less than Rs.50,000. Note that you need to mention this withdrawal amount in your ITR if you fall in the taxable bracket.
Tax on EPF withdrawal before 5 years when you withdraw more than Rs.50,000
There is a 10% tax deduction on PF withdrawal if you withdraw more than Rs.50,000 before 5 years and your PAN is furnished. Note that if your PAN is not provided then the TDS can be deducted at the highest slab rate of 30 percent. However, there are no TDS deducted if you furnish Form 15G/15H.
When reasons for withdrawal are not in control of the employee
No TDS will be deducted if the employee withdraws it without completing the 5 years of service due to employment termination due to employee’s ill health or discontinuance of the employer’s business or any such reason which is not in control of the employee. Further, no need to mention the same in the income tax return as this withdrawal is exempt from tax.
Final Thoughts
It is always good to know the income tax on PF withdrawal. Also, note there are no TDS deducted if you transfer the PF balance from the old employer to a new employer and your total employment is 5 years or more. Therefore, it is advisable not to withdraw the PF amount when you switch jobs. Always try to transfer the PF balance to the new account at your new company.
Also Read: How to withdraw PF online with UAN
Also Read: How to update KYC in EPF Account Online | KYC on the UAN Member Portal
Thanks. This is useful for me since I’m retiring soon and have to withdraw my PF. What about PPF? Should I show the amount in my current income for tax purpose since that has matured and I have withdrawn the amount? Thanks in advance for the response.
The PPF maturity amount including the interest earned is tax-free. However, the incomes that are exempted from tax need to be reported while filing income tax return under the exempt income section.