An individual has to pay tax on withdrawal of PF accumulations if the same has been withdrawn from a recognized PF account without rendering continuous services for five years or more with the employer. We ar e asked two questions most frequently, I am leaving job after so many years can I claim my EPF, Is EPF balance taxable, Why is my employer is asking to fill Form 15, what is Form 15G, Can I claim TDS? How to claim TDS,How to show PF withdrawal while filing income tax return.
When can one withdraw from EPF?
The rules are that an employee should not be in employment for two months after resigning if he has to withdraw his Provident Fund amount. One can withdraw only after a waiting period of two months after resigning. Earlier one could withdraw EPF from one job even after joining another job as EPFO could not track if one is working or had a PF account. But now with UAN number, EPFO can find out whether you are employed or not and hence EPFO can theoretically reject your application. Remember that EPF is a long term retirement investment product, and transfer of account will help you get the magic of compounding.Our article UAN or Universal Account Number and Registration of UAN explains the UAN number in detail.
Is two months waiting period applicable in all cases?
No. In following cases 2 month waiting period for applying for EPF withdrawal is waived off.
- Those employees who are going abroad for employment/settlement and they don’t intend to return soon, can Apply for immediate PF withdrawal.
- Woman can Withdraw money if she is leaving service for marriage . You have to provide proof of the marriage such as wedding card.
- These are after the retirement or death of the employee.
How are the 5 years calculated?
5 years mean 5 years of contribution to EPF. Say you worked in an organization for 3 years and then left it for higher studies. Then you have contributed to EPF for 3 years old. Just holding the PF account with the employer for five years will not make it 5 years and hence shall not take away the tax implications. But your EPF would earn interest for 3 years after your last contribution. So If you intend to take job after some time(say after higher studies) you can leave your PF account and after joining transfer it to new employer.
What happens if I don’t withdraw from the EPF account after leaving the job?
When you leave the job, you stop contributing to EPF account and your EPF account becomes inactive. But your EPF would earn interest for 3 years after your last contribution. After 3 years your EPF account becomes dormant. Many frauds have been reported of siphoning off the money from the dormant EPF accounts
How much will I get on withdrawing from EPF?
You can check your EPF balance in various ways. Our article How to get information about EPF balance : Annual Statement, SMS, E-Passbook explains the various methods of getting EPF balance explains it in detail. Two methods are
- EPF balance by SMS : From July 2011 one can check the EPF Account balance online.
- Go to http://www.epfindia.com/site_en/KYEPFB.php Select EPFO Office
- Enter PF Account Number which is in the format : EPFO Office Code/Establishment Code(Max. 7 Digits)/Extension(Max. 3 digits)/Account Number (Max 7 digit) (PF Account Number may not have Extension code, in that case leave it blank).
- Enter your Mobile and Name, Accept Terms and condition and Submit.
- You will get SMS alert from EPFO : EE amount : Rs XXXXX and ER amount Rs:XXXXX as on <Today’s Date>(Account updated upto Date).
- EPF Passbook : On 30 Nov 2012 EPFO launched e-passbook facility. The online EPF or EPF ePassbook is an online version of the employee’s provident fund account. You need to register at members.epfoservices.in to get the passbook. Note it takes time for registration to become active. You will get an SMS when you would be able to download the passbook. It shows information in detail, opening balance, contribution every month from employee and employer, how employer contribution is being split into PF and EPS. Withdrawals if any that has been made from the EPF account.
You would get employer’s contribution, employee contribution and interest earned on it. To refresh Normally, both the employer and employee contribute 12% each of the basic salary of the employee plus DA (if any) to EPF. (Employee can contribute more towards EPF voluntarily which is called VPF)
- The entire 12% of employees contribution is added towards PF.
- 8.33% out of the total 12% of the employers contribution is diverted to the EPS or pension scheme and the balance 3.67% is invested in PF. However, if the basic pay of an employee exceeds Rs. 6,500 per month, the contribution towards pension scheme is restricted to 8.33% of Rs. 6,500 (i.e. Rs. 541 per month) or 8.33% of 15,000 ie 1250 pm after Oct 2014. The balance of employers contribution goes into EPF. EPFO has now raised the eligibility ceiling for EPS to Rs 15,000 a month.
- The employer contribution is exempt from tax and employee’s contribution is taxable but eligible for deduction under section 80C of Income tax Act.
How can one withdraw from EPF?
There is no online withdrawal facility as yet. You have to use Form 19 for EPF withdrawal. You can collect Form 19 from your employer , download it from here and follow instructions to fill form 19 from the EPFO website.
- Employer will attest the form and send it to the regional PF office.
- The regional PF office takes about one month to process your application.
- EPFO deposits PF amount directly to the employee’s bank account.
You can track your application status through http://www.epfindia.com/site_en/KYCS.php .Know you can also give SMS number in the application form and receive updates.
What documents are required for withdrawing EPF?
You need following information for withdrawing . Usually the information is available n the pay slip.
- PF account number
- Date of joining
- Date of leaving
- Bank Account number , IFSC code where the money will be deposited.
- A copy of blank cheque for account number verification.
- Form 15G/15H so that TDS before 5 years is deducted at the rate of 10 percent. This is done if you have less than 5 years of service.
What is Form 15G or 15H? Why do I have to fill it?
Form No. 15G or 15H are self-declaration forms that can be furnished by individuals to state that their income is below the taxable limit and hence no TDS should be deducted.
- Provident fund withdrawal is before five years of completion of service attracts tax deducted at source (TDS) at 10 per cent from Jun 1 2015.
- TDS will be deducted at 34 per cent if one does not submit PAN.
- Exemption from TDS has been given to subscribers with no taxable income, provided they submit 15G/15H form. To avoid the levy of TDS, 15H (for senior citizens) or Form No. 15G (other than senior citizens) can be submitted, provided the provident fund amount payable is up to basic exemption limit which for AY 2016-17 is 2,50,000 and Rs 3,00,000 for senior citizens respectively.
- Our article How to Fill Form 15G? How to Fill Form 15H? explains how to fill the form 15G/15H in detail.
Can my employer say no to withdrawing my EPF application?
An employer cannot deny signing your EPF withdrawal form, and he should not, because PF is your money and no one has any right on it. If he does not cooperate you can submit the application to Regional EPFO office. You have to attest your application form by any of these authorities: Manager of a bank or any gazetted officer or Member of the Central Board of Trustees./ committee/ Regional Committee (Employees’ Provident Fund Organization) or Magistrate/ Post/ Sub Post Master/ President of Village Panchayat/ Notary Public. Note that you have to take signature and stamp in every page of the application. Attach service proof such as copies of payslip, ID card, Form 16 or appointment letter from employer to substantiate. Also attach copy of your identity proof as well as Address proof.
Since this is bypass route, EPFO does not encourage this process. Also, there is more chance of fraud as well. Hence It asks for a letter which should state the reason of direct application for EPF withdrawal.
How do I know the status of my withdrawal application?
Visit webpage Claim Status on epfindia.com. Select the EPFO Office where your account was maintained and furnish your PF Account number. Document Know Your Claim Status (pdf format) lists the steps in detail with images at each step. Please be aware of the tax implications of withdrawal.
Does withdrawal of EPF also inlcude withdrawal from pension account i.e EPS?
No when you withdraw from EPF you are not withdrawing from your EPS. With the provident fund, you may also like to withdraw the pension amount. However, you get scheme certificate instead of pension amount, if your service is more than 10 years. To withdraw the pension amount you have to fill the form 10 C.
It seems yes. When we had transferred our EPF from one company to another there was no information about EPS. We asked the question in UAN HelpDesk as explained in our article UAN Problems, Password,Mobile Number,Incorrect Details and Help Desk and the message we got it as follows.
Dear Member, Your UAN Helpdesk Reference ID 15088888 has been closed with closing Remarks
“WHILE TRANSFERRING PF FROM ONE ESTABLISHMENT TO ANOTHER, THE SERVICE DETAILS INFORMATION (VIZ LENGTH OF SERVICE, NON-CONTRIBUTORY PERIOD, LAST WAGES DRAWN ETC) ARE FURNISHED TO THE RECEIVING PF OFFICE IN ANNEXURE-K WHICH WILL BE USED TO CALCULATE PENSION BENEFITS. AMOUNT IN PENSION FUND IS NOT REQ”.
How to transfer EPF?
Ideally, you should initiate the process of transferring your EPF balance as soon as you join your new organization and are allotted a new PF account number. Currently all the online EPF Transfer claims are through http://epfindia.com/Employee_OTCP.html . Our article Transfer EPF account online : OTCP explains it in detail.
If you need money you can partially withdraw from your EPF account, while in service.
You can withdraw from your EPF account upon emergency subject to few conditions and situations mostly after serving at least 5 years of contribution. Earlier it was one of the popular method shown in Hindi movies like Ferrai Ki Sawwari.
- Education or marriage: Withdrawal is allowed for the purpose of self, a sibling’s or children’s marriage or for self/children’s education. You need to complete at least 7 years of service to be eligible for this. Relevant proofs are required. You need to submit Form 31 to your employer. Withdrawal amount is up to 50 per cent of the corpus accumulated till date.
- Medical treatment: Withdrawal is allowed for medical treatment of self, spouse, children or parents. For this, no restrictions are imposed on years of service. You can withdraw up to six times your monthly salary or the total corpus accumulated till date, whichever is lesser. Relevant proofs are to be submitted along with Form 31. There is no limit on the number of withdrawals.
- Purchase of plot: The plot needs to be registered in your name , your spouse’s name or jointly. You can withdraw up to 24 times the monthly salary. However, withdrawal here is allowed only once.
- Construction/purchase of flat or house: You need to have completed at least 5 years of service. Withdrawal is allowed up to 36 times your monthly salary.
- Repayment of home loan: You need to have at least 10 years of employment.
- Renovation of house: You need to have completed at least 5 years of service. You can withdraw up to 12 times your monthly salary.
- Pre-retirement: Minimum age is 54 years. You can withdraw only once and up to 90 per cent of the corpus accumulated.
Is there TDS on EPF withdrawal?
TDS is not applicable :
- If the withdrawal is after five years or more of service, no TDS would be applicable.
- TDS shall not be deducted in case of transfer of provident fund from one account to another.
- TDS will not be applicable in case of termination of service due to ill health of member, discontinuation / contraction of business by employer or other cause beyond the control of the member,
- For computing the period of continuous service, the period of previous employment can also be included, if the accumulated balance while at previous employer is transferred to provident fund of the new employer.
- If the service period is less than 5 years.If the accumulated provident fund balance is less than Rs 30,000, TDS would not be applicable.
TDS is applicable when
- Provident fund withdrawal before five years of completion of service will attract tax deducted at source (TDS) at 10 per cent from Jun 1 2015.
- TDS will be deducted at 34 per cent if one does not submit PAN.
- Exemption from TDS has been given to subscribers with no taxable income, provided they submit 15G/15H form. To avoid the levy of TDS, 15H (for senior citizens) or Form No. 15G (other than senior citizens) can be submitted, provided the provident fund amount payable is up to basic exemption limit which for AY 2016-17 is 2,50,000 and Rs 3,00,000 for senior citizens respectively. Form No. 15G or 15H are self-declaration forms that can be furnished by individuals to state that their income is below the taxable limit.
TDS or No TDS amount EPF withdrawal before 5 years is taxable
What are taxes on EPF withdrawal before 5 years of service?
Do note that, if you withdraw your PF balance before the expiry of five years of contribution, then it is taxable in the year in which you withdrew.
- Your employer’s contributions along with the accumulated interest amount will be taxed as “profits in lieu of salary” under the head Salary.However, relief under Section 89 will be available.
- Interest accumulated on your (employee) contributions will be taxed under the head “Income from other sources”.
- The tax deductions claimed on your contributions to EPF will be revoked or rolled back, and shall be liable to tax.
While filling the income tax form please add income under appropriate section.
If PF withdrawal is after 5 years then it is exempt from tax. You can still show it Income Tax Form under exempt income section like we show PPF Interest (as shown in our article Filling ITR-1 : Bank Details, Exempt Income, TDS Details)
If TDS is deducted and income is less than basic exemption limit then?
If TDS is deducted and income is less than the basic exemption limit then one can claim TDS while filing ITR form and ask for refund.
Example of Tax on EPF withdrawal before 5 years
Lets say Rahul joined an organization in Dec 2013 and quit on 30 Jun 2015. His employer and employee contribution as per UAN passbook is given below. Click on Image to enlarge. Thanks to our reader for sharing his UAN passbook.
UAN Passbook showing Employer Employee Share of EPF
- For AY 2014-15 (FY 2013-14) Employee Share 17,920 Employer Share in EPF 15,756
- Interest earned on Employee Share 147 Employer Share 123
- For AY 2015-16 (FY 2014-15) Employee Share 72,576 Employer Share in EPF 61,830
- Interest earned on Employee Share 4,413 Employer Share 3,884
- For AY 2016-17 (FY 2015-16) Employee Share 18,816 Employer Share in EPF 15,066
- So he has to add Employer Share in EPF 15,756 for AY 2014-15, AY 2015-16 and AY 2016-17 109,312(17,920 + 72,576 +18,816 ) . Interest on Employer’s share 123+3884. He can reduce tax outgo on the employer share and interest using section 89.
- Interest accumulated on employee’s contribution will be taxed as Income from Other sources: 147 + 4,413
- If he has claimed 17,920 as deduction under 80C then he has to reverse that. By using the 17920 as 80C deduction his taxable income would have reduced hence his tax . So the tax he saved will now have to be shown. This reversal has to be taken in for every year. For example his income in AY 2015-16 was 8.25 lakh and he had claimed 80C deduction of 1 lakh which included 72,576. Unless has has made other investments where he can claim 72,576 he would not have to calculate the tax without the deduction.
- So on 8.5 lakh due to 1 lakh tax deduction his tax liability was Rs 77,250. Now without 72,576 his 80C deduction is reduced to 27,424(1,00,000 – 72,576) so his tax liability became 89,515 that is increase of 16,939. He has to pay tax on this income.
What is relief under section 89?
When salary or other income arrears are received in any particular year, one’s tax liability for that year increases. Simply because one’s total income for that year has increased. But having to pay a higher tax on account of arrears is unfair to the taxpayer. Our Income tax law has taken the same into consideration and allows a tax deduction under Section 89(1) for this additional tax burden on the tax payer. It involves ascertaining the two amounts of tax, the first is the amount of tax applicable to the total income, including the extra amount in the year of receipt. The second is calculating the amount of tax by adding the arrears to the total income of the years to which they relate. The difference between the two amounts is the deduction allowed.
Say, you earn Rs.10 lakh a year in financial year (FY) 2014, and receive an arrear of Rs.4 lakh for FY13. Your total salary in FY13 was Rs.8 lakh.
For FY14, without the arrears, your tax liability will be Rs 1.34 lakh, and with arrears (total salary of Rs.14 lakh), it will become Rs.2.57 lakh. This is a difference of Rs.1.23 lakh.
Now, we have to calculate the tax incidence for FY13, on your salary of Rs. 8 lakh. Without the arrears, you paid a tax of Rs.92,700, and with the arrears (total salary of Rs.12 lakh) you would have paid Rs.1.95 lakh as tax. This is a difference of Rs.1.03 lakh. So, the relief that you can get under section 89 is Rs.20,600 (Rs.1.23 lakh – Rs.1.03 lakh).
You will have to fill up Form10E with these details and then submit it to your current employer to claim the relief. Keep your salary slips handy to provide as proof of receipt of the arrears. But do keep in mind that only if the tax paid is higher will you be able to claim this relief. If you do not have to pay excess tax due to the arrears, then you do not get the relief.
Summary:
- An employee should not be in employment for two months after resigning if he has to withdraw his Provident Fund amount.
- withdrawal of EPF does not inlcude withdrawal from pension account. Fill a separate Form for PF withdrawal.
- Provident fund withdrawal before five years of completion of service will attract tax deducted at source (TDS) at 10 per cent from Jun 1 2015.
- TDS will be deducted at 34 per cent if one does not submit PAN.
- Exemption from TDS has been given to subscribers with no taxable income, provided they submit 15G/15H form.
- TDS or No TDS amount EPF withdrawal before 5 years is taxable
- if you withdraw your PF balance before the expiry of five years of contribution, then it is taxable in the year in which you withdrew.
Related Articles:
- How to Fill Form 15G? How to Fill Form 15H?
- Basics of Employee Provident Fund: EPF, EPS, EDLIS, EPF Calculator : Method I 3.67%
- Salary, Net Salary, Gross Salary, Cost to Company: What is the difference
- Withdrawal or Transfer of Employee Provident Fund
- UAN Problems, Password,Mobile Number,Incorrect Details and Help Desk
If you have withdrawn from EPF before 5 years, please do share yoru experience and tax calculation to benefit other readers.
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