Withdrawing your Employees’ Provident Fund (EPF) before the five-year continuous service period will not be automatically tax-free in 2025. The latest rules from EPFO have clarified the taxation of such withdrawals and the conditions under which they could be tax-exempt.
What Are the Latest EPF Withdrawal Tax Rules?
According to the new rules:
- The general tax implication is that one has to pay tax on EPF withdrawals made before 5 years of service.
- The entire amount will be added to the taxpayer’s income, and the tax will be charged based on the slab rate which is applicable to him/her.
- If the withdrawal amount is over ₹50,000 and PAN is provided, TDS (Tax Deducted at Source) at the rate of 10% will be levied. In case of no PAN, TDS will be charged at the rate of 30%.
- No TDS will be deducted if the total EPF account balance is less than ₹50,000, but the amount may still be taxable.
On the other hand, there are situations when the EPF withdrawal before 5 years becomes tax exempt:
- If the employee’s services are terminated owing to ill health, closure of the company, or situations not under their control.
- If the EPF amount gets transferred to the PF account of the new employer.
- If the withdrawal is executed after the lapse of 2 months from the day of being unemployed and the employee has not taken another job.
How It Affects Employees
This rule comes into play for such employees who:
- Transfer their PF accounts while making job changes frequently.
- Quit or get laid off before completing a 5-year period.
- Withdraw from EPF for emergency purposes like medical treatment or buying a house.
If proper planning is not done regarding EPF withdrawals, then the tax liabilities can be a surprise in such cases.
Expert Advice
The tax consultants have such a view that one should not withdraw from EPF account unless it is really necessary. “If you have to withdraw before the 5 years, be sure to study the tax ramifications and accordingly file your returns,” is what CA Mohammed Chokhawala, a tax consultant, states.
Moreover, he suggests further to transfer your EPF balance while switching jobs so that no discontinuity occurs, and no tax is there on the interest earned.
Conclusion
The answer to the question “Is EPF withdrawal before 5 years tax-free?” is mainly no—unless one qualifies under specific exemption provisions. With the new EPFO rules coming into effect in 2025, it is very important to make the right decisions regarding withdrawals to escape tax deductions and fines. Always get a tax consultant’s advice and make use of EPFO’s online tools for tracking your service history and checking your withdrawal eligibility.
