Employees’ Provident Fund (EPF) or
PF as it is commonly known, is the retirement-saviour for salaried individuals.
Contribution to EPF is deductible under Section 80C to claim tax benefits.
However, EPF withdrawal is also subject to tax implications. Here is all you
want to know about PF details in the
context of income tax rules on withdrawal.
Exemption
of TDS on EPF Withdrawal
The
circumstances under which you don’t have to pay TD on withdrawal of EFP are:
●
You have transferred the PF balance from one employer
to another at the time of switching jobs.
●
You have withdrawn the entire EPF balance after the
completion of 5 years of continued service.
●
You have withdrawn less than Rs. 50,000 before
completion of 5 years of continuous service. However, if you fall under the
taxable bracket, a TDS waiver will not be applicable.
●
You have furnished Form 15G/15H along with PF fund on withdrawal of more than Rs50,000 before
completion of 5 years of continued service.
●
You have not completed 5 years of continued service
but withdrawn EPF for either of three reasons. A) Your employer has suspended
the business. B) Your employment is terminated due to your ill-health. C) Any
other factor out of your control.
Please note that 5 years of
continued service spans across your previous and current employer. There should
be no employment gap in between.
Deduction
of Tax on EPF Withdrawal
You are
liable to pay tax on EPF withdrawal under the following circumstances:
●
10% TDS on submission of PAN at the time of
withdrawing less than Rs50,000 before completion of 5 years of continued
service. If you fail to give PAN, a high TDS of 30% will be applicable on the
return of income.
●
You have withdrawn the entire EPF balance after
completion of 5 years of continued service for personal purposes such as
child’s education or marriage, buy a new house, etc.
●
Interest earned on your contribution to EPF is
taxable under ‘income from other sources’.
●
Employer’s contribution and interest are fully
taxable in your salary component.
●
While your contribution to EPF is not taxable, you
will need to pay extra tax at the time of withdrawal in case you have claimed
deduction under Section 80C previously.
As you can understand, EPF
withdrawal has its income tax computation complexities. Hence, it is advisable
to transfer your PF to the new company every time you change employment and
remain in continuous service for at least 5 years. However, if you happen to
withdraw money, do not let it sit in your savings account earning meagre
interest. You should rather look for better investment options.
Here is a
quick investment guide to help you:
●
Plan how you want to utilize the EPF withdrawal
amount – whether you would need it to meet a short-term or long-term
expenditure.
●
The choice of investment instrument depends on your
financial milestones and risk-taking capability, but an FD is always a good option.
●
Invest EPF withdrawal in a safe instrument like
Bajaj Finance FD which can give you attractive and assured returns up to 7.25%.
You can invest for a maximum of 5 years and then renew it again as per your
needs. Investing PF in a high-yielding company FD such as Bajaj Finance FD can
help you beat inflation.
In a nutshell, you must check for tax rules before you decide to withdraw the EPF. It can save you significant taxes in 2021 and beyond!
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