TDS on your EPF Withdrawal

What is EPF?

The Employees Provident Fund (EPF) is an employee retirement benefits scheme introduced by the Employees Provident Fund Organisation or EPFO under the supervision of the Government of India^[1]. Under this savings scheme, both the employer and employee will contribute 12%^[1] of the employee’s salary and Dearness Allowance (DA) to the EPF. The current interest rate on EPF deposits is 8.25 % ^[1] per annum. Contribution towards EPF account offers benefits to employees in the form of  deduction under Section 80C^[2]. The accumulated interest on the deposit under EPF is tax-free. Employees receive a lump-sum payment upon retirement which includes the accrued interest. ^[1].

However, the employee has to meet the following conditions to withdraw the entire EPF amount:

• You are permitted to withdraw the entire EPF funds upon retirement. The retirement age set by the EPFO is 58 years^[2]
• You are qualified to withdraw 90% of the funds one year before retirement i.e. after completing 54 years of service^[2]
• You are allowed to withdraw 75 % ^[2] of the EPF amount if you have been unemployed for a month
• After two months of unemployment, you will be able to draw out the entire EPF funds
• You are eligible for withdrawal without your employer's consent provided your Aadhar is linked with UAN (Universal Account Number) and your employer has approved it. This will allow you to get online approval for withdrawal through the EPFO portal^[2]

You can qualify for partially  withdrawing funds  under the following circumstances provided you fulfil certain conditions^[2]:

• Medical emergencies
• Education
• Purchase of land or residential property
• House renovation
• Home loan repayment etc

When is EPF withdrawal taxable?

There are certain situations under which EPF is taxable. They include:

Withdrawal before 5 years

In case you are withdrawing the EPF amount before 5 years of continuous service, TDS will be deducted. However, TDS will not be applied when the amount is less than Rs.50,000^[2]. When calculating these 5 years of service, the employment time with your previous employer will also be factored in. When you transfer your EPF balance from your old employer to the new employer, and your total employment period accounts for 5 years or more^[2], TDS will not be deducted. Keep in mind that the tenure needs to be exactly 5 years without any grace period (TDS will be applied even if you are short by a few days).

Withdrawal by temporary employee

When you are hired for a temporary position or work on a contract with an employer, you are considered an off-roll employee. The employer is not liable to contribute to the EPF of temporary staff. But, you become an on-roll employee after a certain amount of time and the employer starts to contribute your EPF. Now, consider you resign after 5 years of working. In this case, the 5 years^[2] should be calculated from the date of becoming a permanent employee.

Withdrawal from an Unrecognised EPF

A fund which the Commissioner of Income Tax does not approve is considered an unrecognised EPF. Perhaps, your fund was approved by the commissioner of the provident fund or any other authority. However, for your fund to enjoy the tax benefits of a recognised EPF- where withdrawals after 5 years are exempted from tax the Commissioner of Income Tax should approve it. Regardless of whether you have completed 5 years of service or not, you will be taxed for withdrawals in case you are a member of the Unrecognised Provident Fund (URPF)^[2].

Rates on TDS

You will not have to pay any TDS under following circumstances^[3]:

• Transfer of PF from one account to another PF account.
• Termination of service due to ill health of member /discontinuation of Business by employer/completion of project/other cause beyond the control of member.
• If an employee withdraws PF after five years.
• If PF payment is less than Rs. 30,000/- but the member has rendered service of less than 5 years.
• If employee withdraws amount more than or equal to Rs. 30,000/-, with service less than 5 years but submits Form 15G/15H along with their PAN

Whereas TDS will be deducted in respect of the following cases^[3]:

• If employee withdraws amount more than or equal to Rs. 30,000/-, with service less than 5 years, then

1) TDS will be deducted @ 10% if Form-15G/15H is not submitted provided PAN is submitted.

2) TDS will be deducted @ maximum marginal rate (i:e. 34.608%) if employee fails to submit PAN.

Do note that these regulations of TDS of EPF withdrawal are subjected to change as per government regulations. The shared information is applicable for FY24-25. [1^st April 2024- 31^st March 2025]

To conclude, whether TDS on your EPF withdrawal will be deducted or not will depend on your tenure of continuous service and the time of EPF withdrawal.

FAQs

What is tax deducted at source?

^[4]

 

Tax Deducted at Source (TDS) is the tax amount deducted by the payer  from the taxpayer's income (payee) which is deposited to the Income Tax Department on behalf of the taxpayer (payee).

Does a provident fund provide for any refundable loan for Housing etc.?

^[5]

 

No; however, you can avail of non-refundable loans for housing.

If an employee is not given the PF membership, to whom he can approach?

^[5]

 

You need to first approach the employer, failing which you need to meet the Regional Provident Fund Commissioner of the nearest PF office.

References:

^[1]https://groww.in/p/savings-schemes/employees-provident-fund-epf

^[2]https://cleartax.in/s/pf-balance-withdrawal-incometax

^[3]https://www.epfindia.gov.in/site_docs/PDFs/Updates/TDS_FlowChart_Instructions_Eng.pdf

^[4]https://incometaxindia.gov.in/Pages/faqs.aspx?k=FAQs+on+Tax+Deducted+at+Source(TDS)

^[5]https://www.epfindia.gov.in/site_en/FAQ.php