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Why you shouldnt withdraw from PF before 5 years

Employees Provident Fund (EPF) is a quite popular savings instrument among employees. Be it due to its popularity or our regular contribution to it, there are plenty of questions asked on EPF.

Among these, two questions are asked most frequently:

1. When can you withdraw your EPF balance?

2. Is EPF withdrawal taxable?

Let's now explore EPF withdrawal along with its rules and taxation.

When can you withdraw EPF?

Like any other financial product, you would like to withdraw balance from your EPF account upon emergency. EPF withdrawal is allowed subject to few conditions and situations.

You can withdraw from your EPF in these situations:

Education or marriage: Withdrawal is allowed for the purpose of self, a sibling's or children's marriage or for self/children's education. You need to complete at least 7 years of service to be eligible for this. Relevant proofs are required. You need to submit Form 31 to your employer. Withdrawal amount is up to 50 per cent of the corpus accumulated till date. Medical treatment: Withdrawal is allowed for medical treatment of self, spouse, children or parents. For this, no restrictions are imposed on years of service. You can withdraw up to six times your monthly salary or the total corpus accumulated till date, whichever is lesser. Relevant proofs are to be submitted along with Form 31. There is no limit on the number of withdrawals. Purchase of plot: The plot needs to be registered in your name , your spouse's name or jointly. You can withdraw up to 24 times the monthly salary. However, withdrawal here is allowed only once. Construction/purchase of flat or house: You need to have completed at least 5 years of service. Withdrawal is allowed up to 36 times your monthly salary. Repayment of home loan: You need to have at least 10 years of employment. Renovation of house: You need to have completed at least 5 years of service. You can withdraw up to 12 times your monthly salary. Pre-retirement: Minimum age is 54 years. You can withdraw only once and up to 90 per cent of the corpus accumulated.

Is EPF withdrawal taxable?

Yes, EPF withdrawal is taxable for withdrawals made before rendering 5 years of continuous service.

What is 5 years of continuous service?

5 years of continuous service doesn't mean you need to work with the same employer for 5 straight years. You can also change employers, and in such cases, previous employments will be considered. You, however, need to transfer your PF account to the new employer for this purpose.

There are a few exclusions which do not require the clause of 5 years of continuous service for EPF withdrawal such as employer discontinuing the business, termination of service due to ill health, etc.

What would be the tax on EPF if withdrawn before 5 years?

Tax on PF can be broken into three parts:

1. Total contribution by the employer plus interest (not taxed earlier) will be taxed under the head 'profits in lieu of salary'.

2. You will be taxed on the amount of tax benefit claimed for your contribution of EPF.

3. Interest received on your own contribution to EPF will be taxed as 'income from other sources'.

Conclusion

Many prefer withdrawing the EPF balance from their accounts instead of transferring it to the new employer because process complications. However, EPF now has an online withdrawal and transfer facility. You can withdraw from the EPF account after staying unemployed for at least 2 months after leaving your current job.

Read full story here: www.ndtv.com

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