From June to August 2020, the Government of India will continue to pay the employer and employee contributions to employees’ EPF accounts. It is applicable to establishments with less than 100 employees who draw a salary of less than Rs 15,000 per month and have up to 100 employees. For non-government organizations, the contribution to EPF has been reduced from 12% to 10%. For FY 2020-21, the interest rate on EPF contributions will be 8.5%.
There is a benefit to contributing to an EPF account in the form of a deduction under Section 80C. It would also be helpful to know if there are any income tax implications or TDS implications when withdrawing from an EPF account.
Under certain circumstances, EPF withdrawals are taxable, while under other circumstances, they are exempt.
Withdrawal of EPF before five years
The TDS will be deducted if you withdraw from the EPF before you have completed five years of continuous service. As part of the calculation of five years of service, you will be included in your previous employer’s tenure as well. The TDS is not deducted from your EPF balance if you have been employed by a new employer for five years or more. If you are short by a few days, there is no grace period. Make sure you calculate the exact five years.
Employee on a temporary basis for some part of five years
It might be that you are hired for a temporary position or on contract for a short period of time. You are not on the employer’s payroll during this period and you are not entitled to EPF contributions. You are then placed on the payroll and your employer begins making EPF contributions. You resign after five years. Nevertheless, since five years aren’t complete, the employer will deduct TDS from your EPF withdrawal since you weren’t on permanent rolls during these months.
You have an unrecognized EPF
Funds not approved by the Commissioner of Income Tax are considered unrecognized provident funds; however, some may have been recognized by a commissioner of provident funds or any other formal authority. It must, however, be approved by a commissioner of income tax in order to receive the income tax benefits of a recognised provident fund (where withdrawals are taxed after 5 years). No matter how long you have served as a member of the URPF, your withdrawals will be taxed. Check your EPF status with your employer.
Withdrawals are taxed in what way
There are three components to your EPF payout.
- Contribution from you/employee
- Contribution interest on your/employee’s contribution
- Contributions from employers and interest on contributions from employers
Contribution of you and your employees
Contributions to your EPF are not taxable. Otherwise, if you have claimed section 80C deductions for earlier contributions, you might have to pay additional tax as if you hadn’t claimed 80C at those times.
Contribution interest for you/your employees
Taxes from other sources are applied to this portion.
Interest on employer contributions and employer contributions
You will see an entry under salary TDS in your Form 26AS for it when TDS is deducted on employer’s contribution and interest on it.
TDS rates
In the case of withdrawal before five years of service, TDS will be deducted at 10% from the EPF balance. In the absence of a PAN, TDS will be deducted at the highest slab rate of 30%. Form 15G or Form 15H can be submitted if there is no tax on your total income, including EPF withdrawals. TDS will not be deducted if Form 15G or Form 15H is submitted.
A table showing how EPF withdrawals are taxed
Taxability of EPF withdrawals is summarized in the following table:
| Sl No |
Scenario |
Taxability |
| 1 | Before completing five continuous years of service, Rs 50,000 is withdrawn | There is no TDS.
Individuals who fall under the taxable bracket, however, must include EPF withdrawals in their tax returns |
| 2 | During the first five years of continuous service, more than Rs 50,000 was withdrawn | If you provide your PAN, you will be charged TDS at 10%;
Form 15G/15H does not require TDS |
| 3 | After five years of continuous service, EPF can be withdrawn | TDS is not required.
Furthermore, the individual does not have to provide the same return of income as such withdrawal is exempt from tax |
| 4 | When changing jobs, PF can be transferred from one account to another | TDS is not required.
Since the income is not taxable, the individual does not have to return it. |
| 5 | When the employee’s employment ends due to illness or the employer’s business is terminated before completing 5 continuous years of service | There is no TDS.
Additionally, the individual does not need to provide the same services in the return of income as such withdrawal is exempt from tax |
When withdrawing EPF, how can I avoid TDS?
To avoid TDS on EPF withdrawals, follow these steps:
- Don’t withdraw the EPF amount from your old job and transfer it to your new company’s account when you change jobs.
- You will not be charged TDS on withdrawals in the future if you defer them for five years (continuous service with all employers).
- No TDS is deducted if the withdrawal amount does not exceed Rs 50,000.
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