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Yogi Zone

Useful articles for your finance management by our team of experts

EPF withdrawal taxable for less than 5 years of continuous service

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epf withdrawalEPF as a savings instrument is quite popular among the employees. Be it due to its popularity or our regular contribution to it, there are plenty of questions asked on EPF. Two questions among these have been asked 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. Following are the situations when you can withdraw from EPF:

1)      Education or Marriage – Withdrawal is allowed for self, siblings or children’s marriage or for self/children’s education purpose. 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% of corpus accumulated till date.

2)      Medical treatment – Withdrawal is allowed for medical treatment of self, spouse, children or parents. No restrictions are imposed on years of service. You can withdraw up to six times the monthly salary or total corpus accumulated till date, whichever is lesser. Relevant proofs are to be submitted along with form 31. No limit for number of withdrawals.

3)      Purchase of plot – Plot needs to be registered in your name /spouse /jointly. You can withdraw up to 24 times the monthly salary. However, withdrawal is allowed only once.

4)      Construction/purchase of flat or house – You need to have at least 5 years of service. Withdrawal is allowed up to 36 times the monthly salary. Withdrawal limit is same as purchase of plot.

5)      Repayment of home loan – You need to have at least 10 years of employment. Withdrawal amount and limit are same as purchase of flat.

6)      Renovation of house – You need to have at least 5 years of service. You can withdraw up to 12 times the monthly salary. Limit is same as above.

7)      Pre-retirement – Minimum age is 54 years. You can withdraw only once and up to 90% of corpus accumulated.

Also read: What happens to an inactive EPF account?

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 continuous years. You can also change your employer and the previous employment will be considered for this purpose. You need to transfer your PF account to the new employer for this purpose, though.

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.

Know more about Tax Saving Investments

What would be the tax on EPF if withdrawn before 5 years?

Tax on PF can be broken into three parts:

1)      Total of employer’s contribution plus interest which was 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’.

Click here to download forms for claiming benefits under EPF.

A lot of people prefer withdrawing the EPF balance from their accounts rather than transferring it to the new employer because of process complications. However, EPF now has online withdrawal and transfer facility. Also, you can withdraw from the EPF account after staying unemployed for at least 2 months after leaving your current job. You can also launch your grievances on your EPF account online with EPFiGMS.

  • Rakesh

    Hey is there a way I can avoid paying the income tax on EPF, if I have not worked for 5 years I have a total accumulation of somewhat less than 2 lakhs.

    • Av Suresh

      IT act says you have to report the EPF withdrawal income in your tax returns. The amount will be added to the total income and then taxed as per tax slab. If the total income does not exceed Rs. 2 lakhs in the year, tax will be nil.

      • AM

        I withdrew from EPF and I have 5+ years of experience in current company. So, I suppose I don’t have to pay tax on the EPF withdrawal at all. Can you please confirm?

        Is there any section in ITR where I need to specify the EPF withdrawal amount as tax exempt?

        AM

  • Lalit singh

    Hi Expert,

    My PF account is active since 1 October 2011,But I
    left the job in December 2013 for further study ,So my account is in
    inoperative since then.Below is my pf account summary on June 2014 :

    Closing Balance as on : 30/04/2014

    Employee Share : 49642

    Employer Share : 33018

    Pension Fund : 14878

    Due to financial need, I want to withdraw that now… how much amount will be deducted as tax? How much amount I’ll get?

    Please answer ASAP so that I can take my decision accordingly.

    Thanks in advance

    • Av Suresh

      1) Total of employer’s contribution plus interest which was 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. The benefit will be added to your income for the year and taxed as per your tax slab.
      3) Interest received on your own contribution to EPF will be taxed as ‘Income from other sources’.

      • Lalit singh

        Thanks for your quick reply,

        As I mentioned I am doing further studies so I left the job.

        1.Now my first concern is whether EPF dept. will deduct tax by their own or they will give full amount during withdrawal as in my case (Employee Share : 49642 + Employer Share : 33018 + Pension Fund : 14878)?

        2. What I got from your reply is that IT tax dept. will deduct tax not the EPF, it seems EPF pay full amount and rely on IT tax dept. for tax deduction.

        Thanks,
        Lalit Singh

        • Av Suresh

          EPFO will deducted TDS as per the directive issued by IT department.

          • Lalit singh

            Thank you so much for all your replies.
            You have cleared my doubt and help me a lot.

            Thanks,
            Lalit Singh

  • D.Sen

    Dear Suresh, I left my job on June 2005 after working for 2.5 years. But I did not transfer my PF or withdrawn it till now. Now I am working in a organization where we have PF Trust. So, please suggest my optons and what will be the tax implications if withdrawn.

    • Av Suresh

      You can transfer the EPF balance to the current employer. This would be the best option for you. If you withdraw before 5 years, following would be the tax:

      1) Total of employer’s contribution plus interest which was 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. The benefit will be added to your income for the year and taxed as per your tax slab.
      3) Interest received on your own contribution to EPF will be taxed as ‘Income from other sources’.

  • Jeet

    Hello Suresh,

    Me and My wife work for same company for 8 years now. We bought a pre-launch under construction apartment. I am taking Home loan & need to pay 20% Downpayment. Is there anyway , i can withdraw amount from mine & my wife’s PF account and invest that in the house ? So far i have got Sales agreement copy and encumberance certificate & tax paid till date documents with me. Please advise. If yes, what is the percentage we can get it ..

    Can we both apply for the same property as we are joint owner of the house ?

  • Bill Gates

    Hey Suresh,

    I am currently working and hence contributing to my EPF account voluntarily for which I claim tax exemption. Now I plan to go on a 2 year study break after 4 years of employment for which I plan to resign from my current job. So if I withdraw my PF amount in the 5th year would the amount still be taxable. Can I withdraw the whole amount? Also, would I be able to withdraw the amount if I am not residing in India?

    Kindly reply as it is really a urgent situation for me.

    • Av Suresh

      Yes, you can withdraw from anywhere. The withdrawal amount will be taxable if withdrawn before 5 years.

      • Bill Gates

        But I would be withdrawing it after 5 years, only I would have worked for 4 years. So that would still be taxable? Also, if my total investment in 4 years is ~4,80,000 can you give me an idea of how much tax would be deducted and how much would I receive?

        • Av Suresh

          If you withdraw it after 5 years, there will be no tax. If withdrawn before 5 years, tax will like this – The total of employer’s contribution plus interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C on account of your contribution to the recognized PF shall be taxed. Also, the interest on your own contribution shall be taxed as “income from other sources”. The tax rate would depend upon your applicable income slab in each of the financial years during which the PF contributions were made. Further, the surcharge and cess, as applicable, for each of the years will also be payable in addition to the basic income tax.

          • Satish

            Hi Suresh,

            Just wanted to make sure I understand your reply. Do you mean that no employment is required for 5years and even if a person has worked for 4yrs and then going abroad for studies can withdraw the PF in the 5th or 6th yr and it will not be taxable?

            Is my understanding correct or does the 5yrs min requirement includes all 5yrs to be employed.

            Thanks

  • A.Rathinam

    Hi,

    I need your help in deciding if I should withdraw my PF.

    Below is my employment history as per chronological order.

    Compnay X – 4 years and 2 Months
    Company Y – 3 months
    Company Z – 4 years and 7 months

    When I left company X and joined Y, i dint withdraw my PF, neither did i transfer it.
    When i left Y, i withdrew my PF accumulated in Y for 3 months.
    Upon joining Z, I transfered my PF from company X to company Z.
    Now I have left company Z and joined another company.

    As I transferred my PF from X to Z and the combined tenure is around 8 years and 9 months, will my PF be taxed if I withdraw it? will this be considered as continuous service ? will my tenure in company Y affect my taxation?

    Regards,
    A.Rathinam

    • jains

      same scenario: transferred X to Z directly, now withdrawing both Z (includes X) and Y. none of these exceed 5 year employment individually, however cumulative is more than 5 years. finance dept advised to fill 15G, however tax consultant advised that its not required if your income (including PF) is beyond 250K slab.

      if I go head, EPFO deducts 30% TDS, will I be able to claim as refund via final IT filing? Will have proof of continuous employment for Y+Z exceeding 5 years.

      • Naveen

        Hey guys, I too have a same scenario. Were you able to find any break through to avoid tax? Please revert back..
        Thanks
        Naveen

  • Shafeer

    Hi,
    I have only 3 years of experience with EPF. I want to withdraw fund from PF for house construction. Is it possible to withdraw as I have only 3 years of experience? If yes, please provide steps for applying for advance. Please share links if this is possible online.

    • Shafeer

      I am waiting for a response to the above question

  • Sharath

    Hi Suresh,
    I plan to leave my job this year and would keep the EPF account inactive till next FY(mar-2016). If I withdraw it then with no additional income other than EPF, will my tax be calculated basis the EPF amount I recevied and as per Tax slab? Or will it be calculated basis my tax slab while EPF contributions were done?
    Further is it possible for me contribute to EPF account myself without being employed and keep it active for >5years.
    Regards.

  • Ranga Rao

    I have worked in an Organisation till from Nov 2011 to July 2014 ( for less than 3 years ) in India. I have resigned on medical grounds. My PF balance was just less than 10 Lakhs. Now I have two options: 1) withdraw the amount now 2) wait till it makes 5 years. I am not working in India so want to know if I wait till December 2016, will I be able to withdraw without any tax?

    Coming back to option 1 – i) Since I have resigned on Medical grounds, can I withdraw the amount without tax. if so what proofs do I need to show. In this case, do I need to pay any tax at all ii) If the above is not acceptable: Since I am not working any more in India ( I am not in India now), I don’t have any other income. Hence my employer’s contribution + interest ( interest on my own contribution and employer’s contribution) will be around 6 Lakhs. Assuming my previous tax benefits on EPF are NIL (I will have to check my previous Form16 s) my tax will be assuming my income is 6 Lakhs. Is my understanding right?

  • Sathappan Arunachalam

    It is informed that my PF transfer claim rejected and rejected form sent to address on 30.04.2015 .

    But
    my employer unable to trace the same. Here by i am bringing to your
    notice that can i give new transfer claim form again to my employer for
    initiating My PF transfer to succeed .

    More over first transfer form 13 i had given on 04-FEB-2015.

    On 26.Feb.2015, i resigned .Now i am working in Middle east.

    My experience with First previous employer is 3.2 years
    My experience with second previous employer is 4.3 years

    Can i go for immediate withdrawal instead transferring from my first employer to second employer and followed by withdrawal.

    If i withdraw now, PF amount is taxable? if so how much, Please guide me in this sir. Expecting your usual cooperation

    Regards,
    A.Sathappan
    sathappan_85@yahoo.com

  • Sathappan Arunachalam

    How to get Form16 without employer help

  • Merin

    Hi Suresh,

    I have been working for 3 years and 8 months and has a PF amount of Rs110000.
    After marriage , I have quit my job on Jan 30,2015 and is now settled abroad .I have not yet withdrwan the PF amount from the PF account.

    Do I need to pay tax for this amount. If then how much?

    If I apply to withdraw the PF amount now , will tax be deducted.

    Kindly advise.

    • bhanuteja

      Hi Merin,

      The amount is taxable and its is 30% of your PF amount.

  • Vijay

    Hi,

    I worked for company-1 for the duration of 4 years and withdrawn my PF after switching to company-2 and there was no tax deducted at that time in 2011. Now after working for 4 years 2 months I switched to company-3 who don’t have PF option. If I withdraw my PF (company 2), would they deduct tax on my PF amount even though there is no PF in company-3?

  • tklinson

    I have nearly 20 years of continous service and I have withdrawn Rs 15 lakhs from PF for purchase of flat. Do I have to pay taxes for? The second question is whether I will get tax exemption for my present contribution to PF as a withdrawal has happened in this FY? An early reply will be helpful in my tax planning.

  • M. R. CHOUDHARY

    Hi,

    I am working in a institution above 33 years. My query is if i am withdraw rupees three lakhs from my PF account whether it is taxable or not?

    Regards,

    M.R.CHOUDHARY
    crobcc@icai.in

  • Shaik

    Hi, I have worked in a company 6 years 7months but PF contribution is 4 years only. I have joined company in Sep-2008 but my PF deducted in May-2011 after 2years 6 moths completion , I have resigned Apr-2015. If I with draw PF is it taxable or non taxable.

  • Shubham Pandey

    I had worked for a Central Govt. PSU for 1.5 years. Now I have switched to Central Government job where there is no PF since employees joining after 2004 are contributing in NPS. So I cant get it transferred here. Also, I have not completed 5 years of continuous service. Will I have to pay tax if I withdraw it or it may be exempt under the clause of reasons beyond the control of employees.

  • Monish

    I have written an article demonstrating the impact of EPF tax on middle class employees you can find it here… I believe your users will benefit from this information please share it to spread the awareness and help people understand the impact with numbers http://bit.ly/1SeHwZ0

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