EPF (Employee Provident Fund) is a retirement benefits scheme for salaried individuals. Employee’s contribution to EPF was eligible for deduction under section 80C. However, as per the recent announcement in Budget 2021, interest earned on annual PF contribution exceeding INR 2.5 lacs from April 2021 will now be taxable. Employers also contribute towards EPF and their share is tax-free in the hands of the employees.
EPF withdrawals have always been a topic of discussion. Frequent changes in EPF withdrawal rules keep employees on the edge. The major concern for them is whether the EPF withdrawal amount is taxable or not.
So let’s take a look at the EPF withdrawal rules to understand this better:
EPF Withdrawal Rules
Withdrawal of the EPF account by a salaried employee between switching jobs is illegal. As per EPF withdrawal rules, a salaried employee can withdraw from a provident fund account on two counts;
- If a person has no job and
- If two months have elapsed since last employment (not attached to any organization or unemployed for 2 months).
Members whose service has been terminated due to ill health, contraction or discontinuance of business of the employer or other cause beyond the control of the member shall not be required to submit PAN, Form No. 15G/15H along with Form No. 19. In such cases, no income tax (TDS) shall be deducted as per Rule 8 of the Fourth Schedule to the Income Tax Act, 1961.
Conditions to Withdraw EPF Balance for Salaried Employees
Salaried employees can withdraw money from EPF accounts for various purposes, subject to the following conditions.
- A salaried employee can withdraw up to either six times of his monthly salary or total amount towards medical treatment of self, spouse, children and parents.
- One can withdraw for the purpose of marriage of him/herself, siblings and children provided that one has completed a minimum of seven years of service to withdraw 50% of the contribution. (3 times in the entire career)
- A salaried person can withdraw from EPF account for the purpose of house renovation or alteration if a person has completed a minimum of five years of service and the house should be registered in his name, his spouse’s name or be held jointly.
- An individual can withdraw from EPF account for the purpose of home loan repayment provided he has completed 10 years of services and the house should be registered in his name, spouse or be held jointly. Then an individual can withdraw up to 36 times of his salary.
- An individual can withdraw from EPF account for the purpose of Higher education of children.
- If a salaried person wishes to withdraw from EPF account for the purpose of either construction of house or purchase of a plot, the property must be registered in his name, spouse or jointly held. A minimum of five years of service is required to withdraw an amount which is 24 times the salary of an account holder. For the construction of a house, 36 times of the salary of an account holder can be withdrawn. This withdrawal can be done only ONCE during the service of an account holder.
- An individual can choose to withdraw from their EPF account for various reasons such as settling down in a foreign country or premature retirement as a result of any physical or mental disability.
- An individual must be 57 years old to withdraw up to 90% of the amount of his PF account( Earlier the age limit was 54 years).
TDS on EPF Withdrawal
Before Budget 2015, TDS was not applicable on withdrawal from EPF account. But now, TDS is applicable on EPF withdrawals where balance is more than 50,000 and the employee has worked less than 5 years from 1st April 2016 onwards( Earlier the threshold limit was Rs.30,000).
TDS is not applicable in the following cases:
- When an employee terminates his services due to ill-health and withdraws his accumulation.
- On Transfer of PF from one account to another PF account.
- When PF withdrawal is less than Rs 50,000/-. (Before 1st April 2016 it is 30,000/-)
- On discontinuation of Business by the Employer or any cause beyond the control of EPF Scheme member (Employee).
- If withdrawal amount more than or equal to Rs. 50,000/- & service period is less than 5 years then TDS will not be applicable if an employee submits Form 15G /15H along with his / her PAN. Form 15G & 15H cannot be accepted if the amount of withdrawal is more than Rs. 2,50,000/- and Rs. 3,00,000/- respectively.
TDS is applicable in the following scenarios:
If an employee withdraws amount more than or equal to Rs. 50,000/-, with service for less than 5 years, then:
- TDS will be deducted @ 10% if Form-15G/15H is not submitted provided PAN is submitted.
- TDS will be deducted @ maximum marginal rate (i.e., 35.535%) if an employee fails to submit PAN.
Members who have rendered continuous service of 5 years or more, including service with a former employer, shall not be required to submit PAN and Form No. 15G/15H along with Form 19.
If TDS is not applicable then it does not mean that the EPF withdrawals are not taxable. If you withdraw your EPF balance before the expiry of five years of continuous service, then it is taxable in the year of withdrawal. In addition to this, your employer’s contributions along with the accumulated interest amount will be taxed as “profits in lieu of salary”. Interest accumulated on your (employee’s) contributions will be taxed under the head “Income from other sources”.
Recent Updates in EPF Withdrawal Rules
- Retirement Age has been increased from 55 years to 58 years
Earlier the age of retirement for EPF was 55 years. But now it has been increased to 58 years. At present retirement age is 58 years across all organization and now the same will be applicable for EPF.
- You can not withdraw an Employer’s contribution to EPF before 58 years
An individual can not withdraw the EPF contribution by the employer before the retirement age of 58 years. The withdrawals from the EPF within 5 years of joining are still taxable.
- You can withdraw 90% of EPF balance once you reach the age of 57 years
Earlier, a withdrawal was allowed up to 90% of the EPF balance, one year prior to retirement i.e. at the age of 54 years. But now account holder will have to wait till attaining the age of 57 years to withdraw 90% of the accumulated balance
- EPF membership does not end with leaving the job
An Individual cannot withdraw the EPF contribution by the employer before the retirement age. The employer’s portion can be withdrawn only after attaining the retirement age (58 years). Therefore, until you withdraw 100% of the PF balance, your EPF account is will not be closed.
How to withdraw EPF Balance?
Employee PF can be withdrawn in following different ways:
- EPF withdrawal via UAN (Online claim submission)
If you know your Universal Account Number (UAN), then you can directly apply for pf withdrawal without the need for employer attestation.
a. Link your Aadhaar to UAN
b. Submit an application to withdraw EPF online - EPF withdrawal using Form 19.
Form-19 can be downloaded from the EPFI website. Once filled the application can be submitted to the regional EPF Office to claim the EPF balance.
a. EPF withdrawal form attested by one of the following:
i. Bank Manager
ii. A Gazetted Office
iii. Magistrate/Post Master/Sarpanch/Notary Public
b. A letter stating a reason for the direct application:
i. Non-cooperation from an employer is a valid reason
You can check your withdrawal claim status from the Employee’s Provident Fund Organization.
FAQs
If your PF amount is between Rs. 50,000 – 250,000 and you have provided your PAN then TDS will not be deducted. However, if you don’t submit your PAN you will be charged tax on the highest rate of tax slab.
No, it is not mandatory to update KYC details online. However, updating KYC will keep your data up to date. It will also help in reducing the time required for transfer of EPF money from one account to another and for EPF withdrawal amount.
An Individual cannot withdraw the EPF contribution by the employer before the retirement age. The employer’s portion can be withdrawn only after attaining the retirement age (58 years). Therefore, until you withdraw 100% of the PF balance, your EPF account is will not be closed.
Hey @sushil_verma
There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.
For eg,
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.
The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).
Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).
As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.
Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.
No issues. You’re welcome!
Hey @shindeonkar95
In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.
However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.
Hope, it helps!
Hello,
Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?
There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?
I couldn’t find anything on this. Any help is appreciated.
Hello @Veejayy,
Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.
Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.
These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!
Also, interest earned on these bonds will be taxable.
Hope this helps!
Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total
Hey @Sheirsh_Saxena, yes, the investment amount needs to be added under 80C.