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Most of the working people think that if no TDS is deducted while withdrawing PF, it means that the money is completely tax-free. But, tax experts say that this is our biggest misconception. Non-deduction of TDS does not mean that you will not have to pay tax on it. TDS is just a method of collecting tax, while the actual tax liability is determined when you file your Income Tax Return (ITR).
When does your PF become completely tax-free?
If you have worked continuously for 5 years, then there is no tax on withdrawal of EPF money.
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Meaning of 5 consecutive years: This does not at all mean that you have to complete 5 years in the same company.
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You will get benefits like this on changing job: If you change jobs and instead of withdrawing the PF money of the old company, transfer it to the PF account of the new company, then the time of your old job is also added to the new job. In this way, after completion of 5 years, you can avail the benefit of tax-free withdrawal.
When and how is tax levied on PF withdrawal?
If your employment has not completed 5 years, then generally PF money is taxable. Understand it in simple language like this:
| length of employment | Withdrawal amount | TDS rule |
| more than 5 years | any amount | No TDS, money is completely tax-free |
| less than 5 years | less than ₹50,000 | TDS will not be deducted (but tax may have to be paid in ITR) |
| less than 5 years | more than ₹50,000 | On giving PAN card 10% TDS (If there is no pan, more will be cut) |
Tax is not levied in these circumstances even before 5 years
There are some situations in the law when one does not have to pay tax on PF withdrawal even if one leaves the job before 5 years. This happens when you leave your job not as per your wish but due to some compulsion:
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Had to leave job due to poor health or serious illness.
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Your company or business may be closed forever.
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Any reason over which you cannot control and you may lose your job.
Mathematics of tax on different parts of PF
If you withdraw PF before 5 years and it is taxable, different parts of that money are taxed differently:
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Company contribution and interest thereon: This is considered as your ‘Income from Salary’.
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Interest received on your contribution: It is counted in ‘Income from Other Sources’.
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Your own contribution: If you had earlier availed tax exemption on it under Section 80C, then that exemption can be withdrawn and tax may have to be paid.
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Contribution above ₹2.5 lakh: If you have deposited more than ₹ 2.5 lakh in PF in a year, then the interest received on that additional amount also comes under the ambit of tax.
How to get refund if excess TDS is deducted?
Many times it happens that TDS is deducted while withdrawing PF, but at the end of the year the tax on your total income is less. In such a situation, you can get your money back by filing Income Tax Return (ITR). For this, just check your Form 26AS and AIS and claim the refund in ITR.
EPF Scheme 2026: Now new Form 121 in place of Form 15G/15H
Under the new rules of EPF, it has now become very easy to withdraw money and settle claims. If your job has not been for 5 years and you are withdrawing more than ₹ 50,000, then to withdraw money without deducting TDS, you can now use the old form 15G or 15H. Form 121 will fill. The process may have become easier, but the biggest condition for whether the money will be tax-free or not is still ‘5 years of continuous service’.