Over the years, the retirement fund body Employees’ Provident Fund Organisation or EPFO has relieved the method of employee provident fund (EPF) withdrawal. Now, subscribers can apply for EPF withdrawal online and also the time taken for the money to be credited to their account has reduced significantly. In December 2018, the EPFO amended its rules to permit subscribers to withdraw up to 75th of the accumulated EPF corpus after one month of quitting employment. The subscriber will withdraw the remaining 25th after unemployment for over 2 months.
But financial planners typically advise against early withdrawal of the EPF corpus, that they are saying is supposed for post-retirement years. The income tax laws have also been developed to discourage early withdrawal. Here are ten key points to stay in mind as you concentrate on withdrawing your EPF.
Income tax on EPF withdrawal
1) EPF withdrawal is taxable if an employee doesn’t render continuous services for a period of a minimum of 5 years.
2) just in case of employment switch, if EPF is transferred to a different leader, the new employer’s amount of employment is additionally enclosed once conniving the continual amount.
3) If the total period of service is less than 5 years, accumulated EPF balance withdrawn becomes taxable within the year of withdrawal.
4) it’s to be noted that there are four parts to any EPF contribution – employee contribution, employer contribution, and also the interest earned on both the employer and employee contributions.
5) just in case the amount of continuous service is less than 5 years, then the employer’s contribution to EPF as well as the interest attained on it is taxable under the head ‘salary’ within the subscriber’s income tax return.
6) The subscriber’s own contribution isn’t taxable. however if the subscriber had claimed a deduction below Section 80C on his contribution in earlier years, it becomes taxable under salary. Here, it’s to be noted that the EPFO subscriber’s own contribution towards EPF is eligible for deduction below Section 80C of the income tax Act.
7) whereas the subscriber’s contribution to EPF might not be taxable, the interest attained on it is taxed under ‘income from different sources’.
8) On withdrawal before 5 years of continuous service, TDS will be levied at 100 percent.
9) however in an exceedingly few cases, like if the amount is less than Rs 50,000 or the employer is closing down the business, TDS is not levied.
10) If the amount is more than Rs 50,000, and also the period of service is less than 5 years, the subscriber can submit form 15G/15H to avoid TDS in cases where the income for that year is below the taxable limit. form 15H is for senior citizens (60 years and above) and form 15G is for people having no taxable income.
While it’s good to bear in mind the income tax laws that pertain to the first withdrawal of EPF, it still will occasionally add up to withdraw your provident fund, particularly in cases wherever you’ve got completed 5 continuous years of employment, and are now unemployed.