If you have quit your job, you can withdraw your Employees’ Provident Fund (EPF) money even before the completion of five years. However, according to the income tax rules, such withdrawals will be taxable. And not many people know of the tax aspect of withdrawing their EPF money.  According to EPF rules, a member can withdraw up to 75 percent of the accumulated corpus after one month of quitting a job. Further, he/she can withdraw the remaining 25 percent and opt for final settlement in case of unemployment for more than two months.

HIGHLIGHTS : 

  • Withdrawing EPF Money: A TDS (tax deducted at source) of 10% is applicable to the premature withdrawal of the EPF corpus. However, if the entire amount is less than Rs 50,000, then TDS is not applicable.
  • According to EPF rules, one can withdraw up to 75% of corpus after 1 month of quitting job. The remaining 25% if he/she remains unemployed for more than 2 months.

Employee can also submit Form 15H/15G to avoid TDS on EPF withdrawal. Form 15H/15G is a declaration form, which states that a person’s total income (including the EPF money withdrawn) is below the taxable limit.

— Now, there are four components to any EPF payout: 1) employee’s contribution, 2) interest on employee’s contribution, 3) employer contribution, and 4) interest on employer’s contribution.

— The corpus of employee’s contribution is not taxable. But if an employee has claimed deduction under Section 80C while filing income tax return (ITR) in previous years to save taxes, then additional amount may have to be paid to fulfill tax liability of those years.

— The portion of interest on employee’s contribution is taxed as income from other sources.

— The total of the employer’s contribution to EPF and interest earned on it is taxable under the head “salary” in the income tax return.

Practicing chartered accountant, Sachin Vasudeva says, “According to income tax laws, withdrawal from EPF before the completion of five continuous years of service is taxable. The five years of service can be completed either with one employer or more than one. On the other hand, if you withdraw the money after the completion of five years of service, this amount will be exempt from tax.”

“According to rule number 9 of schedule IV and section 111 of the Income Tax Act, the rules of unrecognized provident fund would be applicable in case of withdrawal before the completion of five years. All four components of EPF will be taxable. The amount of tax liability would have to be recomputed for each of the financial years at the tax rates that were applicable to the withdrawer in those respective years,” says Wadhwa.

“The taxability of your contribution, i.e., employee’s contribution will depend on whether you had earlier claimed deduction under section 80C while filing your income tax return (ITR) in the previous years,” says Vasudeva.