The EPF, or Employees' Provident Fund, is a retirement benefit scheme offered by the Employees' Provident Fund Organisation (EPFO). Here, both the employee and employer contribute 12% of the employee’s salary (10% in the case of non-government organisations) towards the employee’s EPF account.
Currently, the EPFO provides an interest rate of 8.10% per annum on EPF deposits. As per the Income Tax Act of 1961, the total balance accumulated in an employee’s EPF account is excluded during the computation of the total income, if certain conditions are met. Hence, the EPF withdrawal is also exempted from tax. However, the EPF withdrawal amount is taxable under certain conditions. Let’s understand this in detail.
When is EPF Withdrawal Taxable?
The EPF withdrawal amount is taxable when:
EPF is withdrawn before completing 5 years of continuous service:
If an employee makes a withdrawal from his/her EPF account before completing 5 years of continuous service, the TDS (tax deducted at source) is deducted.
The EPF withdrawal amount is more than ₹50,000:
If the employee’s EPF withdrawal amount is more than ₹50,000, then 10% TDS will be deducted if the employee does not furnish his/her PAN. No TDS will be deducted if the employee furnishes Forms 15H.
When the EPF is unrecognised:
An EPF is considered unrecognised if it is not approved by the Commissioner of Income. If an employee’s EPF is recognised by any authority other than the Commissioner of Income Tax, his/her EPF withdrawals will be taxable, even after completing 5 years of continuous service.
When is EPF Withdrawal Not Taxable?
The EPF withdrawal amount is not taxable in the following cases:
5 years of continuous service is completed:
The EPF withdrawals are exempted from TDS if the employee has completed 5 years of continuous service. In case the employee transfers his/her EPF balance from the old employer to the new employer, the employee’s tenure with the previous organisation is also included while calculating the 5 years. Moreover, such EPF withdrawals will not be included in the computation of the employee’s total income, thus becoming exempt from income tax.
Termination beyond the employee’s control:
If the employee is terminated due to his/her ill health, due to the discontinuance of the employer’s business, or any other reason that is beyond the employee’s control, then the EPF withdrawals will be exempt from TDS and not included in the total income.
Transfer of PF:
If the employee transfers the funds accumulated in his/her provident fund (PF) from one account to another recognised PF in the event of a change of job, such transfer is exempt from TDS and excluded from the computation of total income.
Transfer to NPS:
In case the employee transfers his/her entire EPF balance to his/her NPS account, such transfer will be exempted from TDS and excluded from the computation of total income.
Also Read: Four Ways To Check Your EPF Balance
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