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EPF Withdrawal: A company which employs 20 or more employees is required to be registered with the Employees' Provident Fund Organization (EPFO). This is why money is deducted from the PF account of most people working in the organized sector. When a person starts a job, he gets a Universal Account Number (UAN) from EPFO. Your employer opens a PF account under this UAN, both you and your company contribute to it every month. Many employees believe that no tax has to be paid on withdrawing money from EPF account. But, this is not completely true. In some circumstances you may have to pay taxes on withdrawals.
If you withdraw the amount after contributing to EPF for five years, then the EPF account holder does not have to pay any tax. Now it does not matter whether you have worked in one company or more than one in these 5 years. But, if you have not worked for 5 years and withdraw the amount deposited in the account, then you will have to pay tax. Yes, under certain circumstances, tax exemption is also available on withdrawal before five years. Such as the employee losing his job due to ill health, the employer closing down his business or other reasons for which he is not responsible at all.
When will tax have to be paid?
If you withdraw money before five years, you will have to pay tax. You will have to pay this tax in the same year in which you withdraw capital from your PF account. Suppose someone started depositing in PF in 2021-22 and wants to withdraw the amount deposited in EPF in 2024-25, then he will have to pay tax in the year 2024-25. Tax will be calculated as per the tax slab applicable to your total income in the year you contribute to PF. The amount deposited in PF has four parts, employee contribution, employer contribution, interest on employer contribution and interest on employee contribution. If the amount deposited in PF is withdrawn before 5 years, tax is levied on all four parts.
This is the mathematics of tax liability
The point to be noted here is that the tax liability on employee's contribution mainly depends on two things. If the employee avails deduction under 80C on his contribution then his contribution will be taxable. Their contribution will be considered part of the salary. But if the benefit of deduction under 80C is not availed, then the employee's contribution will not come under the ambit of tax. The employer's contribution and the interest received on it are considered part of the salary.
How much TDS will be deducted?
If withdrawal is made before 5 years then it becomes taxable. If money is withdrawn from the provident fund before 5 years and the subscriber's PAN card is not linked, then 20 percent will be deducted. Whereas if your PF account is linked to PAN then 10 percent TDS will be deducted. If the amount deposited in EPF is less than Rs 50 thousand then you will not have to pay TDS. If your income is below the taxable limit, you can avoid TDS by submitting Form 15G or 15H.
