Salaried workers often think that money taken out of their Employee Provident Fund (EPF) is tax free. Unfortunately, that is not the case. The tax you pay on EPF withdrawal depends on numerous things like the length of service, reason for the withdrawal and the amount withdrawn.
Knowing these rules is important, especially if you are changing jobs, facing a financial emergency or planning to use your savings before retirement. Since the EPF is mainly meant to help people build a retirement fund, early withdrawals come with certain conditions under the tax laws.
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Here is a simple explanation of when EPF withdrawals are taxable
The tax on your EPF withdrawal depends on how much you withdraw, how long you have worked, and the reason for the withdrawal. If you withdraw less than Rs 50,000 before completing five years of continuous service, no TDS is deducted. But if your total income falls under the taxable limit, the withdrawn amount may still be taxable.
If you withdraw more than Rs 50,000 before completing five years, TDS is deducted at 10% if you have provided your PAN. If you submit Form 15G or Form 15H, TDS may not be deducted.
If you withdraw your EPF after completing five continuous years of service, the amount is fully tax free. No TDS is deducted and you do not need to report the withdrawal as taxable income in your income tax return.
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Similarly, if you transfer your PF balance from one employer to another after changing jobs, there is no tax or TDS. Also, if you leave your job because of ill health, closure of the business or any reason beyond your control, your EPF withdrawal remains tax free even if you have not completed five years of continuous service.
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