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Income tax on EPF at the time of withdrawal
October, 26th 2020

I have withdrawn my EPF balance. The amount received includes components of Employer’s Contribution and Interest as well. The amount also includes Employee’s Contribution and Interest thereon. A TDS at 10% on the entire amount has been deducted, which is shown under Salary in form 26AS. Since I did not claim 80C deduction for my EPF deduction, my share does not become taxable. I wish to understand how all the above components should be disclosed in the ITR to avoid any complication in future.

Except in certain exceptional circumstances beyond his control, in case an employee withdraws the balance from his EPF (Employee Provident Fund) Account before contributions for five years in his provident fund account, the money withdrawn becomes taxable in the hands of the employee. In case the balance in an old provident fund account from previous employer/s is transferred to a new provident fund account mapped with new employer, the contributions made with previous employer are also taken into account while determining the period of five years of contribution.

In case you withdraw the money before contribution in aggregate for five years have been made, the provident fund office deducts tax at 10% if the aggregate balance of the accumulated amount is more than 50,000.

The accumulated balance which becomes taxable in your hands has four components as enumerated by you. The employer’s contribution with interest accrued on such contribution has to be offered under the head “Salaries". The employee’s contribution as well as the interest accrued on such contribution will become taxable under the head “Income from other sources". Since you did not claim the tax benefit for your contribution to provident fund account, you need not offer it for taxation but interest in any case is taxable and to be offered under the head “Income from other Sources".

Since there may be some discrepancy between the amount offered as taxable by you and the one as per your form 26AS, you may receive a notice from tax department, which you can explain with documentary evidence about you having not claimed the benefit for your own contribution under Section 80 C for relevant year with the help of your income tax returns and other supporting documents

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