Tax Deduction on EPF Withdrawal

Readers on this blog have asked this question, times and again, "What are the tax implications on EPF withdrawal?" Since the responses to such questions are all hidden in comments, I decided to write a separate post on the same.

EPF Withdrawal After 5 years

If the total continuous service is more than 5 years (in one or more companies), the EPF is NOT taxable.

EPF Withdrawal Before 5 years

EPF is taxable if a person withdraws it before completing 5 years of continuous service (in one or more companies). As of writing this post, EPFO (Employee Provident Fund Organization) does not deduct tax before giving back the EPF amount (In future, it might do so). However, its our responsibility to pay taxes on the EPF amount as per our income slabs.

Tax liability on EPF can be broken down as:

  • Employee Contribution - Taxable if you have taken exemption for this under 80C

  • Interest On Employee Contribution - Taxable

  • Employer Contribution - Taxable

  • Interest On Employer Contribution - Taxable

EPF amount will be taxable in the financial year when it is withdrawn. This amount will be clubbed with 'salary income' for tax computation purposes. Tax has to be paid on total income according to the slab of that financial year.

Tax exemptions in case of EPF withdrawal Before 5 years

There are a few cases which do not require the clause of 5 years of continuous service for EPF withdrawal -

  • Termination of service due to employer's firm being shut down

  • Termination of service due to employee’s ill health

EPF Withdrawal from PF Trusts

Exempted organizations (companies which have their own EPF trusts) usually deduct TDS on EPF withdrawal. Most of the EPF trusts deduct 30% as tax on the EPF amount. In case if you are not falling under 30% tax slab, you can claim back the refund from the IT department by submitting your IT returns with the help of TDS certificate (issued by PF trust) and Form-16.

Category: finance