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When is your EPF withdrawal taxable? Know tax implications, key considerations for PF withdrawals
EPF withdrawal tax: Know about deductions, TDS, and exemptions. Know when earnings from the Employees' Provident Fund are taxable.
Updated : Oct 12, 2023, 09:36 AM IST | Edited by : Raunak Jain
 "EPF withdrawal taxation, Tax implications on EPF withdrawal, Employees' Provident Fund tax rules, EPF withdrawal guidelines")
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The Employees’ Provident Fund (EPF) is a widely chosen retirement fund for salaried employees in India. It involves employees contributing 12% of their basic salary, matched by their employers. Over time, these contributions accumulate and can be withdrawn upon retirement, along with the accrued interest. However, like other forms of income, EPF withdrawals can be subject to taxation under certain circumstances.
Before withdrawing EPF funds, certain conditions must be met:
• The entire PF amount can be withdrawn upon reaching the retirement age, which is typically set at 55 years by the Employees' Provident Fund Organisation (EPFO).
• An employee can also withdraw 90% of the PF funds one year before retirement.
• In case of unemployment, an individual can withdraw 75% of the PF funds after one month of joblessness, and the entire PF amount after two months of unemployment.
These rules provide flexibility for employees to access their PF funds for various purposes, including financial emergencies and significant life events. It's important to note that the specific conditions and documentation requirements for withdrawal may vary. Therefore, individuals should contact their employer or the EPFO for comprehensive guidance on the withdrawal process.
Regarding taxation, contributions made by employees to their EPF accounts are generally not taxable. However, deductions under Section 80C can be claimed on contributions made in previous years. In such cases, additional tax may be applicable if Section 80C was not previously claimed.
If an employee decides to withdraw their PF funds before completing five years of continuous service with one or more organizations, Tax Deducted at Source (TDS) will be applied. There is an exception if the withdrawal amount is less than Rs 50,000.
On the other hand, EPF withdrawals are tax-exempt if the employee withdraws the amount after five years of continuous service. The calculation of the mandatory "5 years of service" includes tenure with previous employers if the EPF balance was transferred from the old employer to the new one.
