TDS on PF Withdrawals

Understand the rules of TDS on PF withdrawals and how to save on taxes.
TDS on PF Withdrawals
3 min
26-March-2024

The Employees' Provident Fund (EPF) is a valuable retirement savings scheme in India. However, if you withdraw your EPF balance before completing a certain period of service, it may be subject to Tax Deducted at Source (TDS). Understanding how TDS works on EPF withdrawals is crucial for planning your finances and avoiding unexpected tax burdens.

What is TDS?

Tax Deducted at Source (TDS) is a system in which the income tax department mandates the direct deduction of tax from certain income sources, including salaries, interest on fixed deposit, and even EPF withdrawals in specific cases. This mechanism ensures timely tax collection and eases the tax-paying process for individuals.

Why TDS matters?

TDS is a crucial mechanism in India's income tax system for several reasons:

  • Ensures tax collection: The government deducts tax at the point when income is earned, such as with your salary or interest payments. This prevents tax evasion and ensures a steady flow of revenue for the government.
  • Widens the tax base: TDS helps bring more people into the tax system. Even if someone doesn't file a formal return, TDS makes sure they've contributed some tax throughout the year.
  • Convenient for taxpayers: TDS simplifies tax payment for individuals. Instead of a large lump sum at year-end, taxes are paid in smaller amounts throughout the year.
  • Transparency & accountability: TDS help in create a clear record of income and tax deductions. This improves transparency for both the government and taxpayers.

EPF withdrawal eligibility

  • Unemployment: Being unemployed for over two months makes you eligible to withdraw your EPF.
  • Change of job: If you switch your job and are unemployed for two months then you can withdraw your EPF balance.
  • Medical emergency: In case of a medical emergency, you can withdraw from your EPF account.
  • Home loan repayment: You can withdraw your EPF funds to make payment towards your home loan.

Taxability of EPF withdrawals

The taxability of your EPF withdrawal depends on the following factors:

  • Duration of service: If you withdraw your EPF balance after completing five years of continuous service, the withdrawal is entirely tax-free. However, if you withdraw before this period, tax may be applicable.
  • Amount withdrawn: Withdrawals under Rs. 50,000 are generally not subject to tax, regardless of your service length. However, amounts exceeding Rs. 50,000 can be taxed if you haven't completed five years of service.
  • Tax Deducted at Source (TDS): TDS on EPF withdrawals is deducted at 10% if you have provided your PAN. If you fail to furnish your PAN, the TDS rate is significantly higher at 30%.

Note: Tax laws and TDS rates can change, so it is crucial to stay updated.

Table on taxability on withdrawal of EPF

Scenario

Taxability

Withdrawal under Rs. 50,000 before 5 years of service

No TDS, but taxable if your income falls within taxable brackets.

Withdrawal over Rs. 50,000 before 5 years of service

10 % TDS will be charged

Withdrawal after 5 years of continuous service

No TDS, exempt from income tax.

Transfer of PF when switching jobs

No TDS

Withdrawal before 5 years due medical emergency

No TDS, exempt from income tax.


Rate of TDS deduction

  • If you withdraw your EPF balance before 5 years of service and the amount exceeds Rs. 50,000, a 10% TDS will be deducted.

Note: If you don't have a PAN card, a 20% TDS will be charged.

  • If your total income, including the EPF withdrawal, is still below the taxable limit, you can avoid TDS by submitting Form 15G/Form 15H.

How to avoid TDS on EPF withdrawal?

  • When switching jobs, avoid withdrawing your EPF balance. Instead, transfer it to your new employer's account. This helps maintain service continuity, potentially leading to no TDS after five years of combined service.
  • Generally, no TDS is deducted on EPF withdrawals if completed 5 years of continuous service, including service with previous employers.
  • If your EPF withdrawal amount is less than Rs. 50,000, no TDS is applied regardless of your service period.

Remember, these strategies may not eliminate potential tax liability entirely. Depending on your income tax bracket and other factors, you might still need to pay tax on your withdrawal when filing your return.

Conclusion

Understanding TDS on PF withdrawals allows you to make informed financial decisions regarding your retirement savings. Be mindful of the rules, provide your PAN, and consider submitting Form 15G/15H when applicable to minimise your tax burden.

Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.