Employees’ Provident Fund (EPF) is a crucial retirement savings scheme, but withdrawals are subject to specific rules. Depending on retirement, unemployment, or emergencies like medical needs, marriage, or housing, employees can withdraw fully or partially. Tax implications vary based on service period, withdrawal reason, and fund type. Understanding EPF withdrawal rules helps avoid unnecessary TDS and plan finances effectively.
Tax Exempt Withdrawals
- Withdrawal after 5 years.
- For medical and other specified grounds (or).
- Transfer of PF amount to NPS account.
- No TDS if the amount withdrawn is less than Rs.50,000
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- The entire EPF amount can be withdrawn upon retirement.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- EPF amount can be withdrawn without the employer’s consent by obtaining approval online when the Aadhar is linked with the UAN, and the employer has approved it.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.
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.
TDS on EPF withdrawal before 5 years
If you withdraw from EPF before completing 5 years of continuous service,the withdrawal amount is taxable. 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 (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, the withdrawal amount is taxable |
| 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.
Frequently Asked Questions
1. What is the Employees’ Provident Fund (EPF)?
The Employees’ Provident Fund (EPF) is a retirement savings scheme designed to provide financial security to employees after retirement, funded by contributions from both the employer and the employee.
2. Who can withdraw from the EPF?
Any employee who has contributed to the EPF can withdraw their funds upon meeting specific eligibility criteria, such as retirement, unemployment, or medical emergencies.
3. What are the conditions for full EPF withdrawal?
Employees can withdraw the entire EPF amount upon retirement at the age of 55, after two months of unemployment, or under certain conditions for premature withdrawals.
4. Can I withdraw EPF for medical emergencies?
Yes, you can withdraw EPF partially for medical purposes, provided you fulfill the specified conditions.
5. What are the tax implications on EPF withdrawal?
The tax on EPF withdrawal depends on various factors such as the duration of service, the reason for withdrawal, and the amount withdrawn. Generally, withdrawals after 5 years of continuous service are tax-exempt, whereas withdrawals before 5 years may attract TDS.
6. How is TDS calculated on EPF withdrawals?
TDS is deducted at a rate of 10% if the amount withdrawn is greater than Rs. 50,000 and the employee’s PAN is furnished. If PAN is not provided, the TDS rate is 20%. Withdrawals below Rs. 50,000 do not attract TDS.
7. What if I withdraw my EPF after 5 years of service?
If you withdraw your EPF after completing 5 years of continuous service, you will not be subject to TDS, and the withdrawal is exempt from tax.
8. How can I avoid TDS on EPF withdrawal?
To avoid TDS, you can transfer your EPF balance to the new employer instead of withdrawing it, or ensure that your withdrawal amount is less than Rs. 50,000. Additionally, if you have not had any TDS liability, you can submit Form 15G/Form 15H.