The Employee Provident Fund or EPF funds is conventionally meant to be utilised after the retirement of an employee, however, the EPFO allows an individual to withdraw the amount before retirement also – that too under certain conditions, tax-free.
Employee Provident fund is a saving vehicle designed by EPFO (Employees Provident Fund Organisation) under Ministry of Labour and Employment. For building a sizeable corpus under PF (provident fund), employees contribute 12 per cent from their respective salaries, basic pay plus DA (dearness allowance), and the employer adds the same amount in relative terms. The EPF is conventionally meant to be utilised after the retirement of an employee, however, the EPFO allows an individual to withdraw the amount before retirement also.
The EPF amount can be withdrawn in case of necessities such as repayment of a loan, unemployment for more than 2 months, for treating illness of any family member, for marriage of self, daughter, son, brother, etc (blood relation) and for purchase & construction of a house. The amount which can be withdrawn from the EPF account is subject to various criteria and the tenure of EPFO membership. Note that, these are all not liable for tax deductions if the subscriber uses proper form and provides relevant proofs to the authorities.
Here are the rules for PF withdrawal:
- All withdrawals made before completion of 5 years of continuous service are subject to tax. Withdrawals after completion of 5 years of continuous service in the EPF are tax-free.
- In case the employee was terminated or is unemployed as a result of ill-health or any other reason, for more than 2 months, withdrawals will not attract tax.
- If the employee makes a withdrawal before the completion of 5 continuous years in the scheme, the principal amount as well as the interest accrued, is subject to tax. That said, the amount will be taxable in the current financial year. And tax will be deducted at the time of dispense of amount. That means the employee will get amount after tax deducted and the tax will be deposited against his PAN to the Income Tax Department.
- For withdrawals before completion of 5 continuous years towards the scheme, the employee will be taxed 30% of the principal amount and the interest accrued if he/she has not submitted their PAN to the EPFO authorities. If the employee has submitted his/her PAN details to the EPFO authorities, 10% TDS (tax deducted at source) will be applicable.
- Funds transferred from one’s PF account towards the National Pension Scheme (NPS) will not attract tax when one makes a withdrawal.
- If the employee shifts jobs and in the process has different PF account, it will be considered as continuous service to the scheme provided there has been no gap in contributions.
- Employees have to facilitate the use of the Composite Claims Form to make a partial withdrawal or a final settlement claim.
- If the employee has seeded his/her Aadhaar card details with their UAN, they can submit the Composite Claims Form to make a withdrawal directly to the EPFO without the requirement of the attestation of their employer. Those who have not seeded their Aadhaar card details with their UAN have to submit the Composite Claims Form with the attestation of their employer to make a withdrawal.
Reasons for PF withdrawal
Subscribers can make a complete or partial withdrawal under the following circumstances:
- If the member has reached the age of retirement.
- If he/she needs to fund their house construction or pay their home loan.
- To cover medical expenses.
- To cover a wedding or education expenses.
- If they have been unemployed for a duration of more than 60 days or two months.
- If they wish to move permanently abroad.
Requirements for PF Withdrawal
To ensure the process of making a withdrawal is seamless, subscribers have to meet the requirements that are listed below, if they wish to carry out a withdrawal without the attestation of their employer.
- Subscribers have to ensure that their UAN is active and their mobile number is seeded with their PF account.
- The PF member should also seed his/her Aadhaar card details with their PF account.
- The member’s bank account details and the bank’s IFSC code has to be integrated as well.
- For final settlements prior to the completion of 5 years in the EPF scheme, the member will be required to seed his/her PAN details.
- Check out for more about PF Withdrawal Guidelines