According to income tax laws, withdrawal from EPF before the completion of five continuous years of service is taxable. The five years of service can be completed either with one employer or more than one. On the other hand, if you withdraw the money after the completion of five years of service, this amount will be exempt from tax.”
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- EPF is withdrawn before 5 years.
If you withdraw from EPF before completing 5 years of continuous service, TDS will be deducted. 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.
- EPF is withdrawn after 5 years.
If you withdraw from EPF after completing 5 years of continuous service, taxability depends on up to certain % which is mentioned in income tax laws.
There are two components in EPF Withdrawal first is investment amount and another is interesting.
- A temporary employee for some part of 5 years.
If you have been hired for a temporary position or you are on contract for a certain period. During this period, you are not on permanent employee and the employer is not liable to contribute towards your EPF. After some time, you are brought on payroll and the employer begins your EPF contribution. You resign after completing 5 years. However, this period includes the months when you were not on permanent employee and therefore the employer will deduct TDS from your EPF withdrawal for 5 years are not complete.
- EPF is an unrecognized EPF.
A fund that is not approved by the Commissioner of Income Tax is considered an unrecognized provident fund. It may have been recognized by the commissioner of provident fund or any other formal authority. But for a fund to enjoy income tax benefits of a recognized provided fund (where withdrawals are exempt after 5 years), it must be approved by a commissioner of income tax. If you are a member of URPF, your withdrawals are taxed, whether you have completed 5 years of service.
- How EPF withdrawals taxed.
Your EPF pay-out has 4 components.
- Employee’s contribution.
- Interest on employee’s contribution
- Employers contribution
- Interest on the employer’s contribution
1) 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.
2) Interest on employee’s contribution – This portion is taxed as income from other sources.
3) Employer’s contribution and interest on the 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.
Rates of TDS:
TDS is deducted @ 10% on EPF balance if withdrawn before 5 years of service.
If the withdrawal amount is less than Rs 50,000 no TDS is deducted.
Remember to mention your PAN at the time of withdrawal. If PAN is not provided TDS shall be deducted at the highest slab rate of 30%.
You can submit form 15G and form 15H if a tax on your total income including EPF withdrawal is nil. TDS is not deducted if Form 15G/Form 15H is submitted.