Provident fund withdrawal. You may have come across this term so many times but may not be sure how it works and what are its implications. right? Don’t worry. This article will help you get a brief idea about PF withdrawal rules and PF withdrawal taxation rules in India (2024). We will also see how PF withdrawal tax calculation happens.
But before moving forward, here is a brief refresher about what is provident fund.
A Provident fund, also known as Employee Provident Fund, is a mandatory retirement or saving scheme. It is one of the most reliable, tax-free tools for retirement savings which currently gives 8.1% returns (do check historical EPF interest rates).
Generally, EPF has two types of contributions: Employer’s contribution and Employee’s Contribution. Here you must know that employees must contribute at least 12% of their basic pay at the end of the month to their EPF account, as mentioned in the current EPF norms. In addition to this mandatory contribution by the employee, the same amount has to be contributed by the employer as well towards the employee’s EPF account. This is known as the Employer’s matching EPF contribution.
By the way, if you were to ask me under which section of the Income Tax Act is PF withdrawal taxation covered. Then the answer is that the Section 192A of the Income Tax Act, 1961 covers the taxation and TDS on the withdrawals from the provident fund in India (2024)
Now let’s focus on the latest PF withdrawal rules and how much tax is levied on PF withdrawal.
PF Withdrawal: Different Purposes – Different Rules
As we all know, rules are dynamic. For every category, there are certain rules. For example, the PF withdrawal rules 2023 vary for different purposes. Have a look:
- For medical purposes, there is no need to meet eligibility criteria. And the limit is set for six times the monthly basic salary or employee’s total contribution plus the lower interest. But the Withdrawal can be made only for the medical treatment of self, parents, spouse or children.
- For marriage purposes, a person who has been in service for a minimum of seven years can meet the criteria. The limit is set only up to 50% of employees’ contributions to EPF. One can withdraw this PF for the marriage of self, daughter or son, and brother and sister.
- According to the new PF withdrawal rules 2023, for educational purposes, a person should have been in service for a minimum of seven years and meet the eligibility criteria. The limit is only up to 50% of an employee’s contribution to EPF. And one can make a withdrawal only for education or for a child’s post-matriculation examination.
Other purposes
Regarding home or land purchasing
If you are considering purchasing or want to construct a house or even purchase land, then to meet the eligibility criteria, you need to be in service for a minimum of 5 years.
Regarding the limit, it is up to 36 times the monthly salary plus dearness allowance for the house purchase.
For land purchase, up to 24 times the monthly basic salary plus dearness allowance.
But there are some conditions before making a withdrawal under this category:
- The house or land must be in your name or jointly with the spouse.
- Withdrawal is allowed only once during the entire service.
- The construction must begin within six months and finish within 12 months from the last investment.
At the time of Home Loan repayment
For Home loan repayment, one should have been in service for more than ten years to meet the eligibility. The limit is set up to 36 times of basic monthly salary plus dearness allowance. The total corpus consists of employer and employer’s contribution with interest.
There are some conditions in this regard too. First, the property must be registered in your name or spouse or jointly with the spouse. Secondly, submission of required documentation according to the EPFO requirements for a home loan etc.
Other than these, one can make withdrawals for Home Renovation, Partial Withdrawals before retirement, or Job Loss.
So that was about the EPF withdrawal rules of 2023.
Employee Provident Fund’s sole focus is on saving for retirement. That is why you should only withdraw from it in the time of a real emergency.
When is EPF Withdrawal taxable?
If you have made any EPF withdrawal before 5 years of continuous service, then it will attract TDS. If you have provided the PAN details at the time of withdrawal, then the TDS rate will be 10%. In case the PAN details are not provided, then the EPF Withdrawal TDS will be deducted at the highest slab rate of 30% (or 34.608% with cess etc.)
But if the total withdrawal amount is less than Rs 50,000 (rupees fifty thousand), then no TDS is deducted. There are a few other scenarios in which the withdrawal made before 5 years is tax-free. For example, serious illness, withdrawals that do not fall under the employer’s authority and any advance made under the EPF scheme is exempted from the tax.
While after retirement (age of 58 years), the EPF withdrawal is absolutely tax-free. But if you do not make any withdrawal from your EPF corpus after even 3 years of retirement, you need to pay tax on the interest earned.
Rules on Withdrawal before five years
Here are the PF withdrawal rules if you want to withdraw from PF corpus before five years of continuous contribution.
If the amount is withdrawn before five years of continual service, then it is subjected to TDS. No TDS is applicable if the withdrawn amount is less than fifty thousand rupees. The tax rate applicable for the withdrawal generally depends on your income tax slabs for that year of withdrawal. If you think you can avoid paying taxes on PF withdrawal then don’t consider it. The Income-tax department can very easily assess whether any tax is applicable to your withdrawals or not and whether there is a tax liability that needs to be cleared by you in any given year.
If PF Withdrawn After Retirement
If you want to withdraw after retirement, i.e. after the age of 58, the EPF Act mandates application for claim of the final settlement. That is, you can apply for the claim of your final settlement.
Then, if you have more than ten years of continuous service, you become eligible and can also apply for the Employee Pension Scheme (EPS) amount. Next, you should know that post-retirement EPF withdrawals are tax-free. And after retirement, the interest earned on the EPF corpus is also taxable.
Can You Avoid TDS on EPF Withdrawal?
Some people have sent me emails earlier about How to avoid TDS on EPF withdrawal legally?
Here are a few options to avoid TDS on your EPF withdrawals – First, when you switch jobs, try not to withdraw the EPF money. Instead, transfer it to the new employer. That way, you also allow your EPF corpus to compound (check this Excel EPF Corpus Calculator). Second, if you can defer withdrawing funds from EPF for five years (of continuous service with all employers), then the withdrawals thereafter anyways are tax-free and will not attract any TDS. Lastly, if your EPF withdrawal amount is less than Rs 50,000, then also no TDS is deducted.
So that was all about the EPF Withdrawal taxation and TDS Rules (2024) in India. In case you’re planning to withdraw some money from your Employee Provident Fund, then I hope you found the above information useful.