The objective of EPF is to create a large retirement fund. On retirement, an employee gets the money deposited in EPF as a lump sum. If the employee’s service period exceeds 10 years, the employee is also eligible for pension.
Private employees enjoy the benefits of EPF. The tax rules related to EPF make it quite attractive. The lump sum received on retirement is not taxable. The question is whether the employee can withdraw the money before retirement under certain circumstances?
Money is deposited in EPF in three ways…
Experts say that EPF deposit is done in three ways. First, a portion of the employee’s salary (12% of basic salary and DA) is deposited in the account every month. Second, the employer also deposits an equal amount in the employee’s EPF account every month. Third, the money deposited in EPF earns annual interest. The central government determines the annual interest rate. In FY25, this interest rate was 8.25%.
Tax on withdrawal of money after less than 5 years of employment…
If an employee withdraws money from his EPF account before completing five consecutive years of service, they will be taxable. However, if the amount is less than ₹50,000, TDS will not be deducted. If a person transfers EPF deposits from a previous employer to a new employer with a total service period of 5 years or more, TDS will not be deducted. Sometimes, when employees change jobs, they do not transfer their EPF balance to the new employer. They only withdraw EPF deposits. Since it is a retirement fund, it is not in the interest of the employee to withdraw money from it.
Tax rules on withdrawals…
If the employee has not completed five years of service and the EPF amount is more than Rs 50,000, then TDS is deducted at the rate of 10%. The employee must provide his PAN details during the withdrawal process. If PAN details are not available, then TDS is deducted at the rate of 20% on the EPF amount. If the employee’s income is not taxable, then they can submit Form 15G/Form H. This will avoid deduction of TDS on the EPF amount.
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