Is Your EPF Amount Taxable

EPF is one of the government’s most popular savings scheme. This debt product is attractive due to its lucrative interest rate, fixed monthly obligation in which both employer and employee make an equal contribution, and it’s nature of being tax-free. This tax-free nature of EPF is maintained mostly when the amount is expected to be withdrawn only after retirement or EPF account is duly transferred in case of a job change.

The basic idea behind EPF is to facilitate fixed monthly savings of salaried individuals for the post-retirement period. But in today’s dynamic scenario people are often opting to close their account with the previous employer at the time of changing their job rather than transferring it. In such a scenario often the amount withdrawn from EPF account does not come under the ambit of being tax-free. So, ideally stating EPF amount is not taxable if its withdrawal is done naturally at the time of retirement or when the account is transferred in case of a job change.

Though there are some specified provisions under which EPF amount can be withdrawn in between of service when certain conditions are satisfied. In order to understand the taxability on EPF amount withdrawn it is better to look at different possible scenarios individually, these are:

  1. When the withdrawal amount is less than Rs. 50,000 and it is withdrawn before 5 years of continuous service. In this case, no TDS is deducted, though if the individual comes under the taxable income slab then he is required to mention such EPF withdrawal in the same year’s income tax return.
  2. When the EPF account is transferred in case of a job change, no TDS is deducted. Also, the individual is not required to show this amount in his income tax return due to its nature of being tax-free.
  3. In the case where before completion of 5 years of service the employment is discontinued because the employer’s business was wind-up, certain health issue of the employee, or some situations which are beyond an individual’s control forces him to withdraw EPF amount are also tax-free. An individual is also not required to mention such amount in his income tax return.
  4. If the withdrawal amount is more than Rs. 50,000 before 5 years of continuous service then TDS @ of 10% is deducted. No TDS is deducted in case Form 15G/15H is submitted. Form 15G/15H is used to prove that the individual comes under the tax-free income slab.
  5. In case EPF is withdrawn after continuous service of 5 years, then in such a case also there is no TDS and the individual is not required to mention the amount in his income tax return for that year.

The above-stated scenarios moreover cover all the possible situations when EPF amount can be withdrawn and whether it will be taxable or not. As per recent EPFO development, in case after retirement if the individual does not make withdrawal till 3 years then that account will be considered inoperative and no further interest will be credited.