Budget 2023 Update: TDS rates are reduced from 30% to 20% on the taxable portion of EPF withdrawal in no PAN cases.
Employees' Provident Fund (EPF) is a retirement fund for salaried employees. Every month, 12% of the employee's basic salary is contributed to the EPF account. The employer will also contribute 12% of the employee's salary towards EPF. Contribution towards an EPF account provides a benefit to individuals by way of a deduction under Section 80C. Employees can also contribute over and above the minimum contribution set by the EPFO, it is called as Voluntary Provident Fund (VPF).
It would also be good to know what would be the income tax or TDS implications of EPF withdrawal.
PF Updates
The EPFO gives an interest rate of 8.25% p.a. for FY 2024-25 and FY 2023-24.
Interestingly, EPF withdrawal is taxable under certain circumstances and exempt under certain circumstances.
Eligibility for EPF Withdrawal
An employee must fulfil the following conditions to withdraw the entire EPF funds:
- The entire EPF amount can be withdrawn upon retirement. The retirement age fixed by the EPFO is 55 years.
- An employee can withdraw 90% of the EPF funds one year before retirement after attaining 54 years.
- An employee can withdraw 75% of the EPF amount after one month of unemployment. The remaining money will be transferred to the PF account of the new job.
- An employee can withdraw the entire EPF amount after two months of unemployment.
- EPF amount can be withdrawn without the employer’s consent by obtaining approval online when the Aadhar is linked with the UAN, and the employer has approved it.
Reasons for Partial Withdrawal of EPF
An employee can withdraw EPF partially for the following reasons upon fulfilment of certain conditions:
- Medical purposes
- Marriage
- Education
- Purchase of land or purchase/construction of house
- Home loan repayment
- House renovation
Tax on EPF Withdrawal
Your EPF payout has 3 components:
- Your contribution/employee’s contribution
- Interest on your/employee’s contribution
- Employers contribution and interest on employer’s contribution
Your contribution/employee’s contribution - This is the amount contributed by you to your EPF. 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 as if 80C was not claimed by you for those years.
Interest on your/employee’s contribution- This portion is taxed as income from other sources.
Employer’s contribution and interest on employer’s contribution - Employer’s contribution and interest on it is fully taxable. It is taxed under the head salary in your tax return. When TDS is deducted on it, you are likely to see an entry under salary TDS in your Form 26AS for it.
Tax on EPF withdrawal before 5 years
If you withdraw from EPF before completing 5 years of continuous service, TDS will be deducted. However, no TDS will be deducted when the amount is less than Rs.50,000. In calculating 5 years of service, your tenure with the previous employer is also included. If you transfer your EPF balance from the old employer to a new employer and your total employment is 5 years or more, no TDS is deducted. Do remember that you must calculate the exact 5 years, there is no grace if you are short by a few days.
Tax on EPF withdrawal by temporary employee
When you are hired for a temporary position or on contract for a certain period, you are not in the permanent rolls of the employer. Thus, the employer is not liable to contribute towards your EPF. However, you are brought on rolls by the employer after some time of your employment, and your employer begins your EPF contribution, but you resign after completing 5 years. In such a case, the period for calculating 5 years should be done from the date of joining as a permanent employee not from the date of hiring to the temporary position.
Tax on EPF withdrawal from an unrecognised EPF
A fund which is not approved by the Commissioner of Income Tax is considered an unrecognised provident fund. It may have been recognised by the commissioner of the provident fund or any other formal authority. But for a fund to enjoy the income tax benefits of a recognised provident fund (where withdrawals are exempt from tax after 5 years), it must be approved by a Commissioner of Income Tax. If you are a member of the Unrecognised Provident Fund (URPF), your withdrawals are taxed whether or not you have completed 5 years of service.
Tax on EPF withdrawal after 5 years
The EPF withdrawal is exempt from tax when an employee withdraws the amount after 5 years of continuous service.
Rates of TDS
TDS is deducted @ 10% on EPF balance if withdrawn before 5 years of service, and the amount is above Rs.50,000. Remember to mention your PAN at the time of withdrawal. If PAN is not provided, TDS shall be deducted at the rate of 20%. You can submit Form 15G/Form 15H if the tax on your total income, including EPF withdrawal, is nil. TDS is not deducted if Form 15G/Form 15H is submitted.
Table on Taxability on Withdrawal of EPF
The following table will help you easily understand the taxability on withdrawal of EPF:
| Sl No | Scenario | Taxability |
| 1 | Amount withdrawn is < Rs 50,000 before completion of 5 continuous years of service | No TDS. However, If the individual falls under the taxable bracket, he has to offer such EPF withdrawal in his return of income |
| 2 | Amount withdrawn is > Rs 50,000 before completion of 5 years of continuous service | TDS @ 10% if PAN is furnished; No TDS in case Form 15G/15H is furnished |
| 3 | Withdrawal of EPF after 5 years of continuous service | No TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax |
| 4 | Transfer of PF from one account to another upon a change of job | No TDS. Further, the individual need not offer the same in return of income as it is not taxable. |
| 5 | 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\the reasons for withdrawal are beyond the employee’s control | No TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax |
How to Avoid TDS on EPF Withdrawal?
Here are a few ways of avoiding TDS on EPF withdrawal:
- When you change jobs, try not to withdraw the EPF amount and transfer it to the new account at your new company.
- If you can defer withdrawing funds from your account for five years (continuous service with all employers), withdrawals thereafter will not attract any TDS.
- If withdrawal amount is less than Rs 50,000, no TDS is deducted.