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Withdrawing PF amount before 5 years of service? Know when it will be tax-free
July, 20th 2021

 If you have quit your job or lost your job, you can withdraw your Employees' Provident Fund (EPF) money even before the completion of five years. However, according to the income tax rules, such withdrawals are taxable. According to EPF rules, a member can withdraw up to 75 per cent of the accumulated corpus after one month of being unemployed. 

Earlier, one was not permitted to make a withdrawal post one month. If the individual remains unemployed for a tenure of 2 months or more, they are allowed to withdraw the remaining 25% and settle the PF amount completely. This means an unemployed person can withdraw 100% of their PF money after two months of being jobless.

According to an EPFO order, the requirement of 2 months waiting period does not apply to women who resign from their job to get married. Subscribers who have crossed the age of 54 years are allowed to withdraw up to 90% of their PF balance at any time after crossing 54 years but within one year of retirement on superannuation, whichever is later.

However, not many people know the EPF withdrawal before five years of continuous service is taxable. In the case of EPF withdrawal after 5 years of continuous service, the amount is withdrawn (both principal and interest) is exempt from tax. 

However, withdrawal made before 5 years is tax-free in these situations:

  • Withdrawal made due to the ill health of the employee or discontinued business of the employer 
  • Withdrawal made for any other reason beyond the control of the employer is also exempt from tax
  • Income Tax is not applicable on any advance availed under EPF Scheme.
  • In withdrawal cases where either the amount is less than Rs 50,000 or the employer closing down the business, TDS is not levied.
  • If the amount is more than Rs 50,000, and period of service is less than five years, the subscriber can submit Form 15G/15H to avoid TDS in cases where the income for that year is below the taxable limit

EPFO also allows partial withdrawal from member's accounts for meeting financial emergencies arising out of Covid-19 crisis. Members can withdraw an amount equal to three months of basic and dearness allowance (DA) or 75% of the credit balance in the account, whichever is lower. One needs to select the ‘Outbreak of pandemic (COVID-19)’ option against the ‘Purpose’ field and click on the ‘PF Advance’ claim.

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