Do you have to withdraw your EPF? The employees who work in the private sector change jobs every few years. It’s actually a growing trend these days. Still, the change in job and withdrawing the PF from your former company could be a loss to you. When you withdraw the surplus funds and the savings that have been kept away for your future will disappear. Adding to that – there is no pension once all of the money has been withdrawn. It is always a wiser choice to merge your former company’s PF with the current company’s PF.
Even after you retire, if you don’t exactly need the money at the moment, you can leave it there for a while. Experts of the market also say that when an employee leaves a job or is fired because of a certain reason, he or she can still leave the money in the account for a while. But if you want to withdraw this, you have your needs, but if it will be taxed or not – we can easily find out here.
Understanding the Income Tax on EPF Withdrawals
It is hard to explain in one line whether the EPF Withdrawal is taxable or not taxable. That is because there are certain EPF withdrawals that are taxed and certain that are not. So be ready to go into a deeper analysis of taxation on your EPF withdrawal.
What Happens if You Withdraw Before 5 Years?
When one withdraws EPF before completing 5 years in service then there will definitely be a tax deduction. While calculating your service of 5 years, the previous employer will also be included. If your balance from the old employer to the new employer and the total employment is five years, there are no TDS deducted. You should also remember that calculating the exact 5 years and there is no grace.
So, if you have not yet completed five years – do keep in mind that your Withdrawals will be taxed. Also, this doesn’t matter if you are using Form 15G, EPF Withdrawal form 31, or any kind of form or type of Withdrawals:- when it is before 5 years, it stands to be taxed according to the new rules.
Do Unrecognized EPFs Tax?
A repair firm that is approved by the government of the Income Tax is considered as a recognized provident fund. If a fund has been recognized by the Commissioner of the provident fund then the fund cannot enjoy the Income Tax advantages of a recognized provident fund. It must be approved by the Commissioner of Income Tax. If you are a member of URPF, your withdrawals are taxed. Whether you completed 5 years or not, it is still taxed. The same does not apply to a recognized EPF holder.
Let’s get more in-depth with this topic and learn more.
How are EPF Withdrawals Taxed?
- EPF withdrawal rules below 5 years and above 50000 rupees are taxable on the individual’s return of income.
- If the amount withdrawn is more than 50,000 rupees, and it is after 5 years, TDS is at 10%. There is no TDS if the 15G and H forms are furnished.
- The withdrawal after 5 years of service does not have TDS, and it is exempt from tax.
- When there is a transfer from one account to another while the job changes, there is no TDS.
How to Avoid TDS While Withdrawing?
- When you change your job, do not try to withdraw the PF and transfer it to the new account at your new company, you will be canceling out TDS.
- If you can keep from withdrawing your funds from your account for 5 years of your service, you will not attract any sort of TDS.
- If the withdrawal amount you want is less than 50000, then there will be no TDS deducted on your withdrawal.
The Importance of Knowing your Tax Charges
It is always too good to know your taxes. As the taxpayer, you need to understand your tax laws, and it will give you peace of mind along with good wisdom. It is good that you thought of taxes on EPF withdrawals, and it’s always good to know your taxes on your investment. You don’t always need to be an expert to know how tax works and how your investments are going to be deducted. You just need to know the basics and the importance of it.
Moreover, it is considered a crime to not file tax returns. While you invest your hard-earned money into schemes and because that will give you futuristic benefits, it comes to your job to know how much will be deducted with a charity of it.
If you asked this question with the intention to withdraw your funds before 5 years of service, you would want to rethink it because it is taxable. If you can wait until after 5 years and below 50000, you can easily withdraw your funds as you will not attract any taxes, and that is the bottom line of this piece.