EPF Withdrawal :Many times, due to change of job or any emergency, we have to withdraw money from our EPF (Employee Provident Fund). But do you know that if you withdraw PF before 5 years, then it can be taxed?

EPF (Employee Provident Fund) is generally considered a tax-free scheme, but for this some important conditions have to be fulfilled. Let us understand in simple language when EPF (Employee Provident Fund) withdrawal is taxed and when it is not.

Why is EPF (Employee Provident Fund) considered a tax-free investment?

EPF (Employee Provident Fund) is called ‘Exempt-Exempt-Exempt’ i.e. EEE scheme. This means that the money you deposit in it is not taxed and the interest received on investment is also tax-free. Apart from this, the entire amount received on maturity is also tax-free. Provided that you have kept this investment for at least 5 years.

In the old tax system, tax exemption of up to Rs 1.5 lakh is available under 80C on contributions made to EPF (Employee Provident Fund). In the new tax system, this benefit applies only to the employer’s contribution.

When is permission given to withdraw EPF (Employee Provident Fund)?

You can withdraw the EPF (Employee Provident Fund) amount completely only when you retire at the age of 55, or leave the job permanently due to any reason like ill health, settling abroad, or closure of the company. In some cases, withdrawal of PF is allowed even after voluntary retirement or retrenchment.

However, the entire amount of EPF (Employee Provident Fund) can be withdrawn even if the member has been unemployed for at least two months.

How is tax levied on withdrawal of EPF (Employee Provident Fund) before 5 years?

If you have not completed 5 years of continuous service and withdraw money from EPF (Employee Provident Fund), then TDS (Tax Deducted at Source) is deducted on it. If you have given PAN, then the TDS rate is 10%. If PAN is not given, then this rate becomes around 34.6%.

But TDS is not deducted in some circumstances, such as when PF account is being transferred from one account to another or when your job has ended due to reasons beyond your control, such as illness or company closure.

How is 5 years of service counted?

Here ‘5 years of service’ does not mean only five years in one job, if you have left one company and joined another and transferred PF, then the service of the previous job is also counted. That is, if the total duration of your job is more than 5 years, then there will be no tax on withdrawal of PF.

Additionally, if your employment is interrupted due to illness, accident, or strike that is not illegal, it will also be considered as continuous service.

Can TDS be avoided?

If service is less than 5 years then there is no direct way to avoid TDS. However, a smart way is that if you have left the job and 5 years have not completed, then instead of withdrawing the PF money, transfer it to a new PF account. With this, your service will be considered continuing, and when the total service exceeds 5 years, then the entire amount will be tax-free.