Retirement Benefits: Employees Provident Fund

Now an employee is not required to wait for approval from the employer for EPF withdrawal anymore. It can be done directly from the EPFO, provided the employee’s UAN and Aadhaar are linked.

• Stage by stage, the Employees’ Provident Fund Organisation (EPFO) has eased the process of employee provident fund (EPF) withdrawal.
• Now, an EPFO subscriber can apply for EPF withdrawal online.
• Since EPF is meant to be retirement corpus, financial planners advise against early withdrawal from EPF account as it is meant for post-retirement years.
• To discourage early withdrawal, the government has formulated income tax laws accordingly.
• Also, partial withdrawal from EPF accounts is permitted in the case of an emergency such as medical emergency, house purchase or construction, and higher education.
• Partial withdrawal is subject to limits depending on the reason.
• The EPF corpus can also be withdrawn if a person faces unemployment before retirement due to lock-down or retrenchment.

Let us go through the details of taxation rules related to EPF withdrawal:

1. EPF withdrawal is taxable if an employee does not render continuous services for a period of at least five years.
2. If the total period of service is less than five years, accumulated EPF balance withdrawn becomes taxable in the financial year of withdrawal.
3. In case the period of continuous service is less than five years, the sum total of the employer’s contribution to EPF and interest earned on it is taxable.
4. Subscriber’s own contribution portion of the withdrawal is not taxable. But if the subscriber claims deduction under Section 80C on their contribution in earlier years, it becomes taxable under salary.
5. The interest earned on the subscriber’s own contribution portion is taxed under ‘income from other sources’.
6. On withdrawal before five years of continuous service, TDS at 10% is levied.
7. In withdrawal cases where either the amount is less than Rs 50,000 or the employer closing down the business, TDS is not levied.
8. If the amount is more than Rs 50,000, and period of service is less than five years, the subscriber can submit Form 15G/15H to avoid TDS in cases where the income for that year is below the taxable limit.

KEY HIGHLIGHTS

• EPF withdrawal is taxable if an employee does not render continuous services for a period of at least five years
• On withdrawal before five years of continuous service, TDS at 10% is levied
• In withdrawal cases where either the amount is less than Rs 50,000 or the employer closing down the business, TDS is not levied.