Is EPF amount taxable upon withdrawal?

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Is EPF amount taxable upon withdrawal?
Not many people would know that withdrawal of employee provident fund (EPF) that is supposedly a corpus amount aggregated for retirement attracts tax liability. The same happens in case an employee withdraws the PF amount without serving the employer for continuous 5 or more years.

However, if an employee transfers the previously accumulated PF amount to the PF account held with the current employer, the previous term of service would also be accounted for while determining tax liability on withdrawal of PF. In this case, the term of service in previous employment is considered to be part of continuous service.

So, the withdrawn employee provident fund balance amount is taxable in the year of receipt as under:

1. Employer's contribution towards the EPF account and interest on it will be taxed under the head 'income from salary'.

2. Interest on your own contribution towards the EPF account will be taxed under the head 'income from other sources'.

3. Tax benefit claimed under section 80C for your contribution towards the PF account will also be taxed subject to a maximum of Rs. 1Lakh in a financial year if the same was considered to be tax exempt in the previous relevant financial years.

The rate at which tax will be charged would depend on the employee's income slab for each of the financial year in which the PF contribution was made. In addition to income tax, withdrawal of EPF amount in either of the aforesaid conditions, also requires payment of surcharge and cess as applicable for each of the years.

If any tax has been deducted at the time of PF withdrawal, you need to pay the balance tax as self-assessment tax. Else, in the other case when no tax has been deducted, the entire tax amount has to be paid before filing the income tax return for the given year in which the PF amount has been withdrawn.

For instance, if you receive the PF amount in the financial year 2013, you need to discharge your tax-liability on account of the same before filing your returns for FY-2013.

Story first published: Thursday, January 9, 2014, 14:09 [IST]
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