The Employees’ Provident Fund (EPF) is an integral old-age saving scheme for salaried employees that they can depend upon after their retirement. However, withdrawing money from an EPF account before expiry of the required tenure will incur huge tax deductions. The biggest concern employees have is that of a 30% tax on certain EPF withdrawals. It is very important to know when and how this tax will apply to those who plan to utilize the benefits of their provident fund savings.
EPF Withdrawal Rules And Conditions
The EPF withdrawals are made within the specific rules framed under the Employees Provident Fund Organisation. Disbursement of provident fund savings partially or fully is allowed to the employees under certain circumstances; different tax implications apply depending upon the period of contribution and the reason for withdrawal.
An employee can withdraw EPF funds under the following conditions:
- After retirement on attaining the age of 58 years
- If they have been unemployed for 2 continuous months
- Special cases such as medical emergencies, home loan repayment, and marriage expenses
Tax deductions apply to those who make withdrawals before the completion of five continuous years of service, 30% tax being one of the deductions that apply in some cases.
When Does the 30% Tax on EPF Withdrawal Apply?
The 30% tax on EPF-linked withdrawals is primarily applicable to cases where an employee withdraws the amount without completing five consecutive years of continuous service and does not submit his Permanent Account Number (PAN). In such cases, the EPFO deducts tax at a higher rate due to the absence of PAN details.
In such cases, TDS of 10%, instead of 30%, will be levied if the concerned employee provides the PAN for tax deduction. In case no PAN is provided, EPFO considers such withdrawal as unverified income and deducts a flat 30% tax deduction prior to releasing the amount.
Taxation Rules Applicable to EPF Withdrawals
The tax treatment of EPF withdrawals is contingent on various factors—the duration of service, reason for such withdrawal, etc. If an employee withdraws the EPF balance after five full years of service, the amount is free of tax. However, for amounts withdrawn before five years, the tax is applicable as follows:
- If total withdrawals exceed ₹50,000 and PAN is provided, TDS at 10% is deducted
- If the PAN is not provided, TDS at 30% is deducted along with applicable cesses
- Amount less than ₹50,000 may not attract TDS, though it may come under taxable income slab of individuals
The employees can get refund on TDS deducted by declaring the withdrawn amount while filing the income tax return if the total taxable income is lesser than the exemption limit.