EPF Withdrawals: When A 30% Tax May Apply To Your Provident Fund

The Employees’ Provident Fund Organisation ( EPFO ), operating under the Ministry of Labour and Employment, is responsible for managing the employees' contributory provident fund. According to the EPF scheme , an employee contributes 12% of their basic salary, which is matched by their employer. The employer's contribution is split into two components: 8.33% is allocated to the pension scheme, while 3.67% is directed toward the employee's EPF corpus.

The primary aim of the EPF scheme is to provide financial security for employees after retirement by offering a pension and a retirement corpus. However, employees also have the flexibility to withdraw funds either partially or fully from their EPF account before reaching retirement age. The EPF scheme doesn't have a fixed term; instead, it matures upon the employee’s superannuation.

The EPFO has established several criteria that govern when and how an employee can withdraw funds from their EPF account. In this article, we discuss the latest EPF withdrawal rules and the tax implications .

EPF Withdrawal Rules 2024:
Under normal circumstances, employees are not allowed to withdraw the provident fund before retirement unless they experience employment disruptions. However, partial withdrawals are permitted in specific situations, such as medical emergencies, higher education, or purchasing or constructing a house.

If an employee becomes unemployed, they can withdraw up to 75% of their EPF balance after one month of unemployment . After two months of unemployment, they can withdraw the remaining 25%, completing a 100% withdrawal. To do so, the individual must declare their unemployment status.

For employees who secure a new job after one month of unemployment, they can withdraw 75% of the EPF citing unemployment, while the remaining 25% can be transferred to their new PF account upon joining the new organization.

Tax Treatment of EPF Withdrawals :
To make a tax-free withdrawal from the EPF, whether partial or full, the subscriber must have completed at least five years of contributions. If the withdrawal amount is less than ₹50,000, no tax will be imposed.

However, if an employee withdraws more than ₹50,000 before completing five years in the scheme, they will be subject to a 10% tax deduction at source (TDS) if they have a PAN card. In the absence of a PAN card, the TDS increases to 30%.