EPF Withdrawal, EPF Interest and Tax applicability
PF ( Provident Fund ) or EPF is also called the Employee Provident Fund Scheme. It is one where the employees contribute a small portion of their remuneration i.e. 12% of their basic pay every month. A matching amount is contributed by the employer. Such a contribution, together, form a corpus. This is to be used to fund the employee’s retirement. EPF withdrawal by employees can, however, be done earlier itself i.e. during the course of their employment. Such circumstances have been elaborated later in the article.
Interest we earn on provident fund is 8.65% for the FY 2018-19.
Withdrawal Rule 2020
- Money from the EPF account cannot be withdrawn during employment, unlike a bank account. EPF is a long-term retirement savings scheme. The money can be withdrawn only after retirement.
- Partial withdrawal from EPF accounts is permitted in the case of an emergency such as medical emergency, house purchase or construction, and higher education. Partial withdrawal is subject to limits depending on the reason. The account holder can request online for partial withdrawal.
- Although the EPF corpus can be withdrawn only after retirement, early retirement is not considered until the person reaches 55 years of age. EPFO allows withdrawal of 90% of the EPF corpus 1 year before retirement, provided the person is not less than 54 years old.
- The EPF corpus can be withdrawn if a person faces unemployment before retirement due to lock-down or retrenchment.
- The EPF subscriber has to declare unemployment in order to withdraw the EPF amount.
- As per the new rule, EPFO allows withdrawal of 75% of the EPF corpus after 1 month of unemployment. The remaining 25% can be transferred to a new EPF account after gaining new employment.
- As per the old rule, 100% EPF withdrawal is allowed after 2 months of unemployment.
- EPF corpus withdrawal is exempted from tax but under certain conditions. Tax exemption on EPF corpus is permitted only if an employee contributes to the EPF account for 5 continuous years. The EPF amount is taxable if there is a break in the contribution to the account for 5 continuous years. In that case, the entire EPF amount will be considered as taxable income for that financial year.
- Tax is deducted at source on premature withdrawal of the EPF corpus. However, if the entire amount is less than Rs.50,000, then TDS is not applicable. Keep in mind, if an employee provides PAN with the application, the applicable TDS rate is 10%. Otherwise, it is 30% plus tax. Form 15H/15G is a declaration form, which states that a person’s total income is not taxable and thus, TDS is avoidable.
- An employee does not have to await approval from the employer for EPF withdrawal anymore. It can be done directly from the EPFO, provided the employee’s UAN and Aadhaar are linked, and the employer has approved it. EPF withdrawal status can be checked online.
PF Withdrawal Rules:
In order to ensure that employees continue to be enrolled in the scheme and avoid making withdrawals from their PF corpus and instead save it for the future or for retirement, EPFO has listed a number of PF withdrawal rules. They are as follows.
- All withdrawals made before completion of 5 years of continuous service are subject to tax. Withdrawals after completion of 5 years of continuous service in the EPF are tax-free.
- In case the employee was terminated or is unemployed as a result of ill-health and so on, withdrawals will not attract tax.
- If the employee makes a withdrawal before the completion of 5 continuous years in the scheme, the principal amount as well as the interest accrued, is subject to tax. That said, the amount will be taxable in the current financial year.
- For withdrawals before completion of 5 continuous years towards the scheme, the employee will be taxed 30% of the principal amount and the interest accrued if he/she has not submitted their PAN to the EPFO authorities. If the employee has submitted his/her PAN details to the EPFO authorities, 10% TDS (tax deducted at source) will be applicable.
- Funds transferred from one’s PF account towards the National Pension Scheme (NPS) will not attract tax when one makes a withdrawal.
- If the employee shifts jobs and in the process has different PF account, it will be considered as continuous service to the scheme provided there has been no gap in contributions.
- Employees have to facilitate the use of the Composite Claims Form to make a partial withdrawal or a final settlement claim.
- If the employee has seeded his/her Aadhaar card details with their UAN, they can submit the Composite Claims Form to make a withdrawal directly to the EPFO without the requirement of the attestation of their employer. Those who have not seeded their Aadhaar card details with their UAN have to submit the Composite Claims Form with the attestation of their employer to make a withdrawal
Criteria’s for PF Withdrawal
1. When an employee is still under service
- If he/she wishes to take an advance from the PF account, the composite claim form (Aadhaar/Non-Aadhaar) has to be submitted.
- If he/she wishes to finance his/her LIC policy through the PF account, Form 14 has to be submitted.
- If he/she has crossed 58 years of age and wishes to claim the pension fund.
- Form 10D should be applied for a monthly pension if 10 years of eligible service has been completed.
- The composite claim form (Aadhaar/Non-Aadhaar) should be submitted if 10 years of eligible service has not been completed.
2. When an employee switches the job
- And wishes to transfer EPF account, Form 13 should be applied
- When an employee leaves an establishment and doesn’t join another
- He/she can make a PF and pension fund claim using the composite claim form (Aadhar/Non-Aadhar)
- Is above the age of 58, and has completed 10 years of eligible service, he/she can make a PF claim using the composite claim form (Aadhaar/Non-Aadhaar) and a pension claim using Form 10D
3. When an employee leaves an establishment due to a physical disability
- He/she can make a PF claim using composite claim form (Aadhaar/Non-Aadhaar).
- He/she can make a pension claim using Form 10D.
- Is above the age of 58 and has not completed 10 years of eligible service, he/she can make the PF and pension claim using the composite claim form (Aadhaar/Non-Aadhaar).
4. When an employee is deceased while in service
- Before the age of 58 while still in service, the nominee/heir/beneficiary can apply for the PF settlement using Form 20, monthly pension using Form 10D, and EDLI (Employees’ Deposit Linked Insurance) amount using Form 5IF.
- After the age of 58 and had completed 10 years of eligible service, the nominee/heir/beneficiary can claim the PF using Form 20, the pension using Form 10D, and the EDLI amount using Form 5IF.
- After the age of 58 and had not completed 10 years of eligible service, the nominee/heir/beneficiary can make the PF settlement using Form 20, withdraw the pension using the composite claim form (Aadhaar/Non-Aadhaar), and claim the EDLI amount using Form 5IF.
5. When an employee is deceased
- Before the age of 58, the nominee/heir/beneficiary may claim the PF amount through Form 20, and pension amount through Form 10D.
- After the age of 58 and had completed 10 years of eligible service, the nominee/heir/beneficiary can claim the PF amount using Form 20, and the pension amount using Form 10D.
- After the age of 58 and had not completed 10 years of eligible service at the age of 58, the nominee, heir or beneficiary can apply for a final PF settlement using Form 20 and for the pension fund using the composite claim form (Aadhaar/Non-Aadhaar).
Reasons for PF withdrawal
Subscribers can make a complete or partial withdrawal under the following circumstances:
- If the member has reached the age of retirement.
- If he/she needs to fund their house construction or pay their home loan.
- To cover medical expenses.
- To cover a wedding or education expenses.
- If they have been unemployed for a duration of more than 60 days or two months.
- If they wish to move permanently abroad.
- If a female employee is resigning due to reasons such as pregnancy, childbirth, getting married, etc.