Tax On EPF Withdrawal

Everyone yearns to enjoy something more for less expended. Be it small pocket money or bonus, it just adds to your happiness. Saving tax on EPF withdrawal is one such example. You’ll know how to conserve your tax or get a tax free withdrawal or more. In this article, we’ll know more about the tax you pay or can save on EPS withdrawal. So, take your charged phone in one hand, and let’s get started.

Tax On EPF Withdrawal

Your EPF amount withdrawal remains tax-free even if you’ve left the job within 5 years under certain cases.

According to the amended EPF rules, you can withdraw 75% of the EPF corpus after 1 month of quitting the job. Remaining 25%, you will get accredited to withdraw after 2 months or more of unemployment.

According to the PF withdrawal rules, if you’ve not completed a service period of a minimum of 5 years, you’re not eligible to get a tax-free amount. Even if you withdraw an amount more than Rs. 50,000 at a time before retirement, you will pay tax. The amount withdrawn shall get tax levied in the year of receipt. Yet, it is tax-free if you’ve completed a continuous service period of a minimum of 5 years. Yet, exception lies.

1. Firstly, if you’ve terminated yourself from the service due to any serious health issues, it may also include your employer closes the business due to any major loss or downfall. There also lies other causes that are beyond your control. Not everything is in your control, right!

2. Secondly, even if you’ve less than 5 service periods, and you’ve changed your organization or employer. Added to that, you’ve transferred your PF balance into a new account. For example, leaving one organization and joining another, getting extra benefits. Thus, it’s a better idea always to change your EPF account when joining a new job.

3. Your own contribution amount from your EPF withdrawal is not tax imposed. Yet, if you would have claimed tax deduction under Section 80C on your contribution in earlier days, you become taxable under salary.

Even if the service period is less than 5 years, the PF amount remains tax-free in all these cases. That is, you can withdraw the amount whenever you want, and it won’t be any tax levied.

You can transfer your PF amount from one company to another. However, if one of them is a trust, you’ve to carry out the procedures offline. You must pass the transfer application through your employer.

For PF calculation, continuous service of 5 years gets counted. It also includes the period you’ve worked with all your previous employers. Thus, the transfer of your PF is workable only if your PF membership gets a validation.

For example, you’ve served company A for 3 years but weren’t satisfied with its wages. So, you shifted to company B. You even transferred your PF amounts into this new organization. But after 4 years, you left this organization too. While you didn’t complete a total term of 5 years in both the companies, you shall still get exemptions from tax. This is because, since you had already transferred your PF amount from company A, the total service period counts up to 7 years. Thus, you can withdraw your PF amount and be tax-free at the same time.

Contributions In Your EPF Account

There are mainly 4 contributions in your EPF account

a. Your Own Contribution

The amount that gets deducted from your monthly salary into your EPF account falls under this category. However, if you extract from this money, there won’t be any tax impositions. Yet, if you’ve claimed tax deduction under section 80C in your earlier contribution days, you shall not get any tax exemption.

b. Your Employer’s Contribution

It is completely taxable under the head salary in your tax return. Look for entry of form 26AS under salary if tax deductions impose on it.

c. Interest In Your Contribution

This is taxable under ‘income from other sources.’

d. Interest In Your Employer’s Contribution

It is taxable as well.

According to the rule-9 of schedule-4 and Section-111 of Income Tax, if your PF account is in an unrecognized organization, the employer’s rules are valid. All 4 contributions will get tax impositions.

However, your own contribution to your EPF account gets eligibility for tax deduction under Section 80C. Even if, in the current situation, you have a zero tax liability, you shall still have to pay tax on the withdrawal. It’s because of the tax liabilities contributed by you and your employer during previous financial years.

In the contribution to your EPF account, along with your contribution, your employer contributes. Your contribution with the interest earned plus your employer’s contribution with interest gets added to your income that year. The employer contributes 12% of your primary salary to your EPF Form-20. You must contribute 3.67% to his EPF and 8.33% to his pension strategy.

However, the interest you’ve earned from your own contribution is the tax imposed under ‘income from other sources.’

All the applicable taxes are mandatory for you to pay. This includes any notion tax that doesn’t fit into this criteria; you must pay them.

Thus, to avoid any tax, make sure you complete these criteria and don’t leave a void.

Tax On EPF Withdrawal In Various Criteria

The tax deductions in various criteria differ according to the demand of the situation. The situation along with the tax deduction rate is mentioned below-

1. EPF Tax Withdrawal For Less Than 5 Years

Under the situation of EPF withdrawal for less than 5 years, we’ve two scenarios next-

i. Tax on EPF Withdrawals if less than 50,000 rupees:

There won’t be any tax impositions. However, if you’ve enrolled under the taxable group, you have to propose your withdrawal under ‘return of income.’

ii. Tax on EPF Withdrawals if more than 50,000 rupees:

No TDS if you submit the form of 15G/H. However, in normal cases, there occurs a TDS deduction at 10% interest.

In both the above cases, it’s taxable. You’re eligible to withdraw about 75% of your corpus accumulated after quitting for 1 month. Further, you can withdraw the remaining 25% after 2 months of your unemployment. However, if you withdraw Rs. 50,000 after 5 years of service that would sound less taxable.

2. EPF Tax Withdrawal For More Than 5 Years

If You Withdraw After 5 Years:

After a continuous service of 5 years, you’re completely exempt from any taxes. You need not offer anything under ‘return of income’ even.

3. Transferring Of PF From One Account To Another 

It is not taxable when you transfer your PF from one account to another. This occurs during the changing of job. Make sure you transfer the amount without withdrawing any amount as the withdrawal shall get tax imposition.

4. Before you complete your 5 years of service, your service period ceases due to any terminal illness. It can also include the organization’s closure by the employer or any other causes- It is exempt from any tax charges. Added to that, you need not mention it under ‘return of income.’

What’s The Rate Of Tax On EPF Withdrawal?

TDS deduction gets carried out at 10% of the EPF amount if you withdraw before 5 years of service. However, make sure you mention your PAN card during the form submission. If the PAN card is not submitted, deductions at a range of 33.608% get exhibited.

15G or 15H has no tax deductions.

TDS On EPF withdrawals

One of the biggest advantages of Form-15G is its no TDS deductions. According to Section 192A, tax deductions will get implied only if

a) The amount of withdrawal is more than Rs. 50,000, and

b) Your service period is less than 5 years.

Earlier the maximum limit on TDS deductions was Rs. 30,000. In 2016, the Income Tax department increased it to Rs. 50,000.

When Is The TDS Applicable?

TDS is applicable as per the above two criteria mentioned. Yet, you can regulate the rate of deductions depending on your PAN card.

• You’ll have to bear a loss of 10% if you fail to submit your PAN card with the Form-15G/H
• 34.608% TDS deductions will get carried out if you fail to submit your PAN card if you have not submitted your 15G or 15H forms.

When Is The TDS On 15G Not Relevant?

There are situations where you can easily avoid TDS deductions. Situations like-

• When you transfer the EPF account to another, this TDS deduction is not applicable.
• The service terminated due to your ill health, business stop by the employer, or any other such beyond control causes.
• Suppose you withdraw your amount from the EPF account after 5 years and not between. It must include the service with your preceding employer.
• If your EPF withdrawal amount is less than Rs. 50,000. Yet, you’ve rendered a service period of fewer than 5 years.
• You can get a TDS exemption if you’ve withdrawn equal to or more than Rs. 50,000 with employment for less than 5 years. For this, you must have submitted your 15G or 15H form with a PAN card. As stated earlier, without a PAN card, you have to pay taxes.

FAQs

Conclusion

Even though at 8.5% tax-free, the EPF withdrawal might prove a far better option than anything else. Since it is a long term investment, withdrawing for petty things can prove foolish. So, it is better to withdraw only if the other sources are not workable. Otherwise, keep it as your future backbone.