Income Tax Return Liabilities Possessed on EPF withdrawals

By March 18, 2019 , , ,

EPF contributions form a component of the salary of almost every employee. These contributions help employees build up a retirement corpus while being in an active employment. EPF contributions also give tax reliefs because the amount invested, the returns earned and the redemption proceeds are all tax-free in your hands. Moreover, EPF also allows you the facility of withdrawing from your EPF account when you need funds subject to certain terms and conditions. But are these withdrawals tax-free?

Taxation of EPF withdrawals would depend on the amount you withdraw, its purpose and the period of withdrawal. Let’s understand the tax rules on EPF withdrawals –

Withdrawal before completing 5 years of service

Usually, EPF withdrawals done after completing 5 years of service are not taxable. However, if the withdrawals are done before you have completed 5 years of service, tax might be applicable in the following instances –

  • If the amount you withdraw is below INR 50,000, the amount would be added to your taxable income and you would have to pay a tax on it as per your income tax slab rate. However, in this case, TDS would not be deducted from your withdrawal
  • If you withdraw any amount which is more than INR 50,000, TDS would be deducted from the withdrawal amount @10% if you have furnished your PAN card details. However, if you submit Form 15G or Form 15H, TDS would not be deducted. The withdrawn amount would also be taxable in your hands as your income
  • If you withdraw the EPF account because of your medical health, because the employer has wound up operations or for any other reasons which are beyond your control, the withdrawn amount would be tax-free. You wouldn’t have to pay any tax on such withdrawal. Moreover, TDS would also not be deducted in such cases
  • Withdrawal after completing five years of service

If you have completed five years of service and then withdraw from your EPF account, the tax liability would be nil. You wouldn’t have to pay any tax on the amount withdrawn. Moreover, no TDS would be deducted from your withdrawn amount.

  • Transferring EPF account to another employer

If you change jobs and transfer your EPF account from one employer to another, no tax would be payable on such transfer. Moreover, no TDS would also be deducted from your transferred balance.

The EPF account is made up of four components –

  • Your contribution
  • Your employer’s contribution
  • Interest earned on your contribution
  • Interest earned on your employer’s contribution

When you withdraw before the completion of 5 years of service, all the four components would be taxable. However, if you have not claimed the tax benefit of your contribution under Section 80C when you invested in EPF, the amount of your contribution would not be taxed. In such cases, only the other three components would be taxed on withdrawal.

Read: – Step by Step EPF Withdrawal Guidline

These are the income tax rules on withdrawal from your EPF scheme. Generally, withdrawals before completing five years of service are taxed with the exception of some instances. You should keep the tax implication in mind when you think of withdrawing from the EPF scheme.