EPFO: Know when tax on EPF withdrawal is applicable and how much to save

If an employee withdraws money from the appropriate EPF before five years have passed since the account was opened, Tax Deducted at Source (TDS) becomes applicable to the retirement-oriented investment instrument, Employee Provident Fund (EPF).

For salaried workers, there is a retirement fund called the Employees' Provident Fund (EPF). The employee contributes 12% of their monthly base pay to their EPF account, 12% of the employee's pay will also be contributed by the employer to the EPF. Individuals gain from contributions to EPF accounts through a deduction under Section 80C. Understanding how an EPF withdrawal might affect income tax or TDS would be beneficial.

Tax on withdrawing EPF:
Your EPF payout consists of three parts:

• Contribution from both you and the employee
• You/your employee's contribution is of interest
• Contributions from employers and interest in contributions from employers

Tax on EPF withdrawal:
TDS will be taken out if you leave the EPF before 5 years of nonstop service. However, when the sum is less than Rs. 50,000, no TDS would be taken into account. 

Rates of TDS after 5 years:
If an EPF balance is withdrawn prior to five years of employment and the amount is greater than Rs. 50,000, TDS is charged at a rate of 10%. Whenever you withdraw money, don't forget to mention your PAN. TDS will be withheld at the highest slab rate of 30% if PAN is not provided. If the tax on your entire income, including the EPF withdrawal, is zero, you may file Form 15G/Form 15H. If Form 15G or Form 15H is submitted, TDS is not withheld.