As we all know that Employees' Provident Fund Organisation or EPFO has simplified the withdrawal process from employee provident fund (EPF) account for the subscribers. They can now request for EPF withdrawal online as it has greatly shortened the time it takes for the money to be added to their account. The EPFO changed its regulations in December 2018 to enable subscribers to withdraw up to 75 percent of the cumulative EPF corpus after leaving a job within one month. For more than two months, the subscriber can withdraw the remaining 25 percent after quitting his or her job. To prevent early withdrawal, the income tax rules were also introduced. As you contemplate withdrawing from EPF, here are 10 salient facts to take into consideration.
- The withdrawal amount from EPF is taxable if an employee does not have consistent service for a duration of five years.
- If the EPF account is transferred to another employer, the duration of employment of the current employer is also included in the estimation of the cumulative duration in case of a job change.
- In the fiscal year of withdrawal, if the overall duration of service is less than five years, the accumulated withdrawn EPF balance is subject to taxation.
- It should be remembered that every EPF contribution comprises four parts: employee contribution, employer contribution, interest received on deposits by both employer and employee.
- If the continuous employment duration is less than five years, then the contribution of the employer to the EPF as well as the interest received on it is taxable in the income tax return of the subscriber under the category 'income'.
- Your own contribution is not taxable. Except if, in previous years you claimed a deduction under Section 80C on your contribution, it remains taxable under salary. It should be remembered here that, under Section 80C of the Income Tax Act, the EPFO subscriber's own contribution to the EPF is liable for deduction.
- In the event of a withdrawal prior to five years, the interest received on the subscriber's contribution to the EPF shall be taxed on the account of 'income from other sources'.
- TDS will be imposed at 10 percent on withdrawal before five years of continuous employment.
- But in a few situations, if the amount is less than Rs 50,000 or the company is discontinued by the employer, TDS is not imposed.
- If the balance is more than Rs 50,000 and the service duration is less than five years, Form 15G/15H can be submitted by the subscriber in order to avoid TDS in situations where the net income for that fiscal year is below the taxable cap. Form 15H is for seniors (60 years and above) and Form 15G is for those without taxable income.
Note: Although the income tax rules regarding the premature withdrawal of the EPF are great to take into consideration, it can also sound familiar at times to withdraw your provident fund, particularly in situations where you have achieved five years of continuous employment and are now jobless.