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How Are Withdrawals From EPF Taxed?

Published On Aug 10, 2021 10:15 AM By InsuranceDekho

Apart from its safety and excellent returns (when compared to other fixed options such as PPF and FD), the Employees' Provident Fund (EPF) enjoys an exempt-exempt-exempt tax status. That is, it is tax-free when it reaches maturity. Contributions to the EPF, as well as the interest earned on those contributions, are tax-free. However, there are certain circumstances under which EPFs can become taxable. The following article elaborates on such conditions, so continue reading to know more about them. 

How Are Withdrawals From EPF Taxed?

The cases mentioned below explains how the EPF withdrawals are charged under different situations.

Case I : When Your EPF is Withdrawn Before 5 Years 

Tax Deducted at Source (TDS) will be deducted if you withdraw from EPF before completing 5 years of continuous service. Your prior employer's term is also taken into account while calculating 5 years of service. If you move your EPF from an old employer to a new employer and have worked for the new company for at least 5 years, no TDS is deducted.

Case II : When You Work as a Temporary Employee for Some Part of 5 Years

Suppose you've been hired for temporary employment or are on a fixed-term contract. You are not on permanent rolls during this time, and your employer is not required to contribute to your EPF. However, after a period of time, you are placed on the payroll, and your employer begins contributing to your EPF. After five years, you decide to resign. In that situation, since the 5-year period does not cover months when you were not on the payroll, your employer can deduct TDS from your EPF withdrawal.

Case III : When Your EPF was Not Recognized By the Commissioner of Income Tax

Unrecognised provident funds are those that have not been approved by the Commissioner of Income Tax. It could have been acknowledged by the Commissioner of Provident Funds or another formal authority. However, in order for a fund to enjoy the income tax benefits of a recognised supplied fund (withdrawals are tax-free after 5 years), it must be approved by an income tax commissioner. If you are a member of the URPF, whether or not you have completed 5 years of service, your withdrawals are taxed. Hence, it is essential to inquire about the status of your EPF with your employer to avoid such a situation.


If you wish to avoid tax deductions from your EPF, you can try not to withdraw the EPF funds and instead transfer them to your new company's new account when you change jobs. Moreover, if you can delay removing cash from your account for five years (consistent service with all employers), no TDS will be applied to subsequent withdrawals. However, it is worth remembering that no TDS is deducted if the withdrawal amount is less than Rs 50,000.

Also read - What Are The Different Investment Options Available In India?

Difference Between Term Insurance, SIP and FD

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.             

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