The Employees’ Provident Fund (EPF) is a popular retirement savings scheme in which both employers and workers contribute every month. Typically, an employee contributes 12% of basic salary and dearness allowance (DA), while the employer makes a matching contribution. But, the employer’s share is split between the EPF account and the Employees’ Pension Scheme (EPS). EPF deposits current earn and annual interest rate of 8.25% per annum.
Although EPF is primarily meant for retirement, employees can make partial or full withdrawals under certain circumstances such as unemployment, medical emergencies or other major expenses. However, withdrawing EPF before completing five continuous years of service can lead to tax liability and TDS deduction. Here’s how tax is deducted if you make early withdrawals, and cases in which such withdrawals may qualify for .
Who are eligible to fully withdraw funds from EPF?
According to ClearTax, an employee must meet certain conditions laid down by the Employees’ Provident Fund Organisation (EPFO) to withdraw the entire EPF balance. These conditions include:
- Retirement: Employees can withdraw the entire EPF balance after retirement at the age of 55 years, as per rules.
- One year before retirement: Employees who have attained 54 years of age can withdraw up to 90% of their EPF funds one year before retirement.
- Unemployment for one month: An employee can withdraw up to 75% of their EPF amount after remaining unemployed for one month. The remaining balance can be transferred to the PF account linked to a new job.
- Unemployment for two months: An employee can withdraw the entire EPF amount after two months of unemployment.
- Withdrawal without employer consent: EPF withdrawals can be processed online without employer approval if the Aadhar number is linked with the UAN (Universal Account Number), and employer has approved it.
How are EPF withdrawals taxable before 5 years?
If you withdraw from EPF before completing 5 years of continuous service, the withdrawal amount is generally taxable in the hands of the account holder, as per Rule 6 of schedule XI of Income-tax Act, 2025.
However, tax exemption is available in certain exceptional situations, such as termination of employment due to ill health, closure or discontinuance of the employer’s business or other beyond circumstances beyond the employee’s control. If you have not completed five years and do not satisfy the conditions mentioned above, whatever money you withdraw along with the interest will become taxable in your hand, according to information available on the official income tax portal.
Additionally, no TDS will be deducted when the withdrawn amount is less than ₹50,000. In calculating 5 years of service, your tenure with the previous employer is also included. If you transfer your EPF balance from the old employer to a new employer and your total employment is 5 years or more, no is deducted, according to ClearTax.
Rates of TDS
If EPF is withdrawn before completing five years of continuous service and the withdrawal amount exceeds ₹50,000, TDS is deducted at 10% provided the employee has furnished PAN details. If PAN is not available, then TDS may be deducted at a higher rate of 20%, according to ClearTax.
However, employees whose total taxable income, including the EPF withdrawal amount, falls below the taxable limit can submit Form 15G or Form 15H to avoid TDS deduction. In such cases, no TDS is deducted if the forms are validly submitted.