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What would be the tax on EPF if withdrawn before 5 years?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