Enacted in the year 1952, the Employee’s Provident Fund is an effective tool for citizens of India to save for their future and time of retirement. With an interest rate of 8.7% accrued on the funds annually in an employee’s PF account - higher than a savings deposit account - the Provident Fund has proved to be a high gain, low-risk measure to save for one’s future. To ensure that employees stay invested in their Provident Fund, withdrawals made after five successive years of contributions are completely tax-free. An add-on bonus, contributions made towards the EPF are tax deductible under section 80C of the Income Tax Act. Withdrawals made by employees before five years of complete service are subject to tax or TDS (Tax deducted at source). Having said that, there are case when an employee doesn’t have to pay tax despite not meeting the specified withdrawal rule of the EPF. Listed below are cases when withdrawals from one’s EPF account will not be subject to tax.
Due to unavoidable illness
If an employee has fallen ill and requires the PF money to pay for his medical expenses, he/she is allowed to make a withdrawal that is free of TDS. The employee has to prove that he/she has discontinued working or his/her business as a result of an illness that is beyond their control. In such a case, the EPFO allows the employee to make a tax-free withdrawal despite him/her not completing five years of continuous contribution towards their PF.
For transfer of funds
When an employee is transferring his/her PF money from one PF account to another, no TDS will be applied on the amount that has been transferred.
If the total PF amount is less than Rs.50,000
If the employee has not served 5 years of continuous service to the EPF, yet wants to make a withdrawal, then if the total PF amount is less than Rs.50,000, he/she’s withdrawal can be tax exempted. If the amount is even a little more than Rs.50,000, the withdrawal will be subject to tax.
Makes a withdrawal using Form 15G or Form15H
If the employee has not completed 5 years of continuous contribution towards the EPF and wants to make a withdrawal, the withdrawal can be tax exempted if the employee submits Form 15G or Form 15H along with his/her PAN card details. This applies if the total PF amount is more or equal to Rs.50,000.
After 5 years of continuous service
Once an employee has completed 5 years of continuous contributions towards the EPF, he/she by law is allowed to make a withdrawal that is not subject to TDS. Having said that, allowing the PF contributions to accumulate in one’s PF account is the smartest option as the accrued interest on the standing balance is tax-free. Allowing the PF money to stand till the point of maturation will allow you to have a suitable retirement corpus - that will be beneficial in numerous ways.