Employee’s Provident fund is a fund administered by Employee Provident Fund Organization of the Government of India. A salaried taxpayer is required to contribute 12%, of his/her basic per month salary, to his/her Employee Provident Fund account. Taxpayer’s employer will also contribute an equal amount to employee’s Employee’s Provident Fund account. The current interest rate for EPF A/c. is 8.8% per annum. This interest is cumulatively compounded. However, interest rate changes every year as per the recommendations made by EPFO.
What are the rules for withdrawal of amount from EPF A/c.?
Here are a few situations in which a taxpayer can withdraw an amount from EPF account
- Repayment of housing loan – Taxpayer can withdraw up to 30 times of his/her monthly salary. However, a taxpayer can withdraw such sum only if he/she has completed 10 years of service. Moreover, the house should be in the name of taxpayer or spouse or joint.
- Renovation of a house- Taxpayer can withdraw up to 12 times of his monthly salary. However, the taxpayer can withdraw such sum only if he has completed 5 years of service. Moreover, the house should be in the name of taxpayer or spouse or joint.
- Health Treatment- Taxpayer can withdraw sum for health treatment of self, spouse, children, and parents. He is required to submit the proof of expenses for medical treatment. However, the withdrawal amount is up to 6 times of his monthly salary.
- Marriage- If the taxpayer has completed 7 years of service then he can withdraw some funds from his/her EPF account, for marriage of self, children or siblings. The taxpayer can withdraw up to 50% of his contribution and such withdrawals can be done thrice in his entire career.
- Superannuation- If taxpayer attains the age of 54, then he can withdraw up to 90% of the amount deposited to his EPF account.
- Others- Taxpayer can withdraw funds from his EPF account for other miscellaneous reasons such as if he/she is migrating abroad, leaving a job due to physical disability etc.
What if the taxpayer changes his job?
While opening an EPF account, every salaried taxpayer is allotted a Unique Account Number (UAN) from the EPFO. Since this number is unique for every salaried taxpayer, he/she can change his/her account as per new job but can continue this account, even after switching his/her job. All the balance in his/her EPF account will remain same
When can a taxpayer close his/her EPF account?
A taxpayer can close his EPF account only at the time of his/her retirement from service. However, in following 2 cases taxpayer is allowed to close his/her EPF account and withdraw the sum-
- Leaving employment forever- If taxpayer leaves his/her job and decides not to continue another job, then, in that case, he/she can close his EPF account. Usually, this situation occurs when taxpayer leaves his/her job and starts his/her own business/profession.
- Two months period- If taxpayer leaves a job and wishes to join new employment, then he/she must be unemployed for more than 2 months, in such a situation he/she can withdraw the sum.
How is withdrawal from EPF account taxed?
The taxation rules in case of withdrawal from EPF account are as follows: -
- If the taxpayer has completed 5 years of his service, then any withdrawal from Employee’s Provident Fund account as per the above-mentioned rules is not taxable.
- If the taxpayer withdraws an amount from his Employee’s Provident Fund account. even if he/she has not completed 5 years of his service, then such an amount is taxed, and TDS is supposed to be deducted.
- In case, the taxpayer provides his Permanent Account Number, TDS at 10% shall be deducted. On the other hand, if the taxpayer does not provide his/her Permanent Account Number, TDS at 30% will be deducted.
However, a monetary limit is given for deduction of TDS. If the taxable withdrawal is more than, Rs. 30,000, then TDS won’t be deducted.
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