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Withdrawal from Provident Fund (PF) Account before Completion of Five years taxable?

Withdrawal of Provident Fund may attract Income Tax. TDS @ 10% will be deducted from the withdrawal amount subject to monetary limit of Rs 50,000, if the withdrawal happened before completing five years of subscription. Tax officials have cited a rule in the 1961 Income-Tax Act that taxes PF withdrawals by employees before completing five years of contributions into the EPF is taxable.

In most cases, the accumulated PF balance is withdrawn at the time of retirement, and therefore, not taxable in the hands of the individual. However, in certain cases like change in employment, an individual may even withdraw the PF balance earlier. The point one needs to remember is that the amount received from such PF is not exempt from tax in all cases. Only under the circumstances listed below will the amount withdrawn from PF be eligible for such exemption from tax.

  • If the employee has rendered continuous service with the employer for five years or more. Again, if the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period.
  • If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt.
  • Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer.

In short, where the PF amount is withdrawn before five years of continuous service, it may be taxable in the hands of the individual as if the fund was not recognised from the start of the contributions. In such a case, payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).

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I-T provisions provide that the trustees of a recognised PF or any person authorised by the regulations of the fund to make the payment of the accumulated balance to the employee should deduct tax at source while paying the amount. Further, the person liable to deduct tax has to issue the certificate of tax deducted at source (Form 16) within the specified time frame to the employee depicting the details of taxes withheld from the accumulated PF balance and also comply with other salary-related compliance necessities. So the next time you think of withdrawing your PF, you must as an individual also assess whether the same is taxable or exempt.

——————

I worked with a private company for four and years and nine months. I have given a provident fund (PF) withdrawal request to my ex-employer. Will the PF amount be taxable?

We understand that the PF maintained by your former employer was a recognized PF. As per the provisions in the Income-tax Act, if the employee has rendered continuous service with his employer for five years or more, then the withdrawal of accumulated balance from such PF is not taxable at the time of termination.

Since the period of your services with the ex-employer is four and a half years which is less than five years, you shall be liable to tax on the amount withdrawn from your PF. In addition to the normal tax payable by you, you will be required to pay all the tax concessions availed by you so far on account of contribution to such recognized PF. Further, the total employer’s contribution plus interest thereon, which was not taxed earlier, shall be taxable as profits in lieu of salary.

However, if the accumulated balance in your PF account is transferred to your recognized PF account maintained by the new employer, no tax liability shall arise due to such transfer.

Image courtesy of Mister GC at FreeDigitalPhotos.net

(Republished with Amendments by Team Taxguru)

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266 Comments

  1. Aparna Sarkar says:

    Hi, I want to withdraw PF as I will be moving abroad. My years of continuous service with employer is less than 5 years. Will the PF amount be taxable?

  2. T R Sunder says:

    I had worked in a company from Jan-2016 To May-2020. If I withdraw my PF amount both my contribution & company contribution will it be taxed. If so tax % ge.
    Also I want to know can I withdraw pension amount also as my service /contribution was less than 5 yrs and I am planning to start my own business and hence will not transfer my PF amount.

    Kindly advice.

  3. Madan Rawat says:

    I have joined a company at the age of 54 years and officially retired at the age of 58 years but again joined the same company within 3 days
    But during extension period my PF was being deducted and deposited in to previous PF number
    Now I am going to retire in June 30 2021
    So when I withdraw my final PF
    Does it attract the TDS as the actual service was less than 5 years

  4. Madan Rawat says:

    I have joined a company at the age of 54 years and officially retired at the age of 58 years but again joined the same company within 3 days
    But during extension period my PF was being deducted and deposited in to previous PF number
    Now I am going to retire in June 30 2021
    So when I withdraw my final PF
    Does it attract the TDS as the actual setvice was less than 5 years

    1. VIJAY MAHENDRA SHAH says:

      I HAVE WITHDRAWN EPF AFTER 5 YEARS BUT TDS IS DEDUCTED . IS IT TAXABLE ? IF NOT IN INCOME TAX RETURN WHERE SHOULD I SHOW AS TDS IS DEDUCTED

  5. Ninad Sule says:

    I joined a MNC on 19May2014. I would have retired on19-Jan-2019 as I would be 60 yrs. But I resigned / took early retirement on 3-Sep-2018. I withdrew my PF on 16April2019. Guess they deducted 10% TDS. Is my balance PF withdrawal amount taxable?

  6. MPS says:

    I have completed 10 years of continuous service in a semi govt organization and wish to withdraw @ 10 lacs from my contribution for the purpose of repaying home loan principal amount.
    In such a scenario will this amount of @ 1o lacs be taxable and if yes at what percentage?

  7. SJ says:

    sir,
    if one leaves the company say after 4 years and nine months ( before completing 5 yrs) but withdraws his EPF after 5 months ( ie: after 5 years and 2months. is the same taxable

    1. Adi says:

      No! It is not taxable. To put it in simple words, if your PF account has existed for more than 5 years, any withdrawal post the 5 period is NON-Taxablle.

  8. Rajasekhar reddy says:

    In 2019 I withdrawn pf amount Rs 85,000 & TDS is Rs8500. At present my gross salary was Rs 7,50,000 for the year 2019-2020. While filing my IT returns shall I add Rs.85,000 to my gross salary or it is not necessary to add. Please tell me as early as possible

  9. TAPAS KUMAR says:

    my total pf amount is more than rs 50000
    example- pension share- rs 24000
    employee +employer share = rs 48000
    I have left the job after 3.5 years
    and i want to withdrawn all pf amount ( pension+employer+employee share)
    my question is there is need to submit 15 g form or not

  10. JOYBRATA CHAKRABORTY says:

    I want to resigned from a tea estate after working 4.5 years, which has their own company’s PF account for their entire workers, staff and management.

    I just want to know, if I transfer my PF balance amount to my new employer’s PF account with different account number, IS IT TAXABLE…..

  11. Anil kumar says:

    i have withdraw my PF But 10% deduction done by pf dept so can you help to get refund of the same & what is the charges apply

  12. Deepak Kumar says:

    I have completed 4 yrs, 11 months and 19 days in Company A and joined Company B with different pf account.
    I withdraw pf earned in Company A after 3 yrs of leaving Company A and got the pf amount after deducting the tax amount.
    Can i file an ITR return on this? or this is taxable income because not completed exact 5 years in Company A?

  13. deepak singh says:

    hey,
    i have a quarry regarding the My pF with drawn from my pervious PF account, i had worked in the firm for 4 yrs and left after the termination of my Contract, i joint the new firm where my new PF account no. was allotted, since my previous employer didn’t provide the details of my pf account . 6 months later i had withdrawn all the account from my previous PF account . can i claim exempted under section 10(11) & 10 (12).

  14. Sudeep says:

    I worked in a company for 3.5 years and then immigrated overseas. I have withdrawn my PF but a 10% TDS was applied to my PF amount. Moreover, I spent just 2 months in India in the financial year. Can I claim tax refund on my TDS?

  15. vinodpandey80 says:

    I worked for 1st organisation for a year and then after a gap of one month joined the 2nd organisation and worked there for 4 years. I also got transferred my PF balance from 1st Organisation to 2nd. Now I withdrawn the PF accumulation in 2nd organisation. they have deducted TDS@10%.

    Now please let me know:-
    1- What is the method of counting continuous 5 years of service for TAX exemption. Is it salary slips. Is it PF Account statement or is it with service certificates.
    2-If the withdrawn amount is taxable in my case.

    Kindly solve the issue.

  16. Achuthan says:

    Before completing 5 years I left the job and went abroad. I have withdrawn the total pf, including company’s contribution.
    Do I have to revise my earlier returns to reflect the of contributions as income in the respective years or will it be considered as the income of the year in which it is withdrawn ?

  17. vijay reddy says:

    Hey,
    I left my previous company and reason for leaving is “CESSATION”. I claimed my PF amount online with out PAN CARD. Amount is less than 30 thousand.
    Do I have to pay Income Tax for this amount ?
    Do I have to mention this amount while filing IT Returns ?

  18. Prateek Panday says:

    I retired from one company at the age of 58 and withdrew my PF after having served them for 20 years. Subsequently, after 6 months of my retirement, I was employed by another company where the retirement age is 60. Having now retired from this company too, having effectively worked less than 2 years, does my PF withdrawal from this 2nd company become taxable. Will the tax (TDS) be 10% and do I have to show this in my ITR. ?.

  19. Ratnakar says:

    I withdrew my PF after 5 years of my first contribution but my continuous service with employer was 3 years and 2 months only . TDS amount 10% was deducted. Am I eligible for refund or I need to pay remaining tax? If yes under which section I can claim refund ?
    Please help.!!

  20. Ashpid says:

    I was working in different banks for last 8 years. The following are my details :
    Organisation Joining Relieving Days worked
    A 12-01-2010 14-07-2011 548
    B 25-07-2011 24-04-2012 274
    C 11-06-2012 05-01-2013 208
    D 14-01-2013 03-10-2015 992
    C(again) 07-12-2015 22-09-2016 290

    Bank A and B have their own PF but the same was transferred to the Government PF on taking up a job with C.

    I withdrew my PF after working for 8 years and the same came to my account in February 2017 after deducting 10% TDS. I have claimed that amount under exempt income and claimed for the refund. Now my refund was not processed and recently I received a email from the Income tax department stating there is a mismatch of income from other sources. Please guide what to do.

  21. Pravesh Patel says:

    Hello Everyone,
    at EPFO portal, I can’t add PAN card details error shows is “Name against UAN does not match with the NAME in Income Tax Department
    ” so my question is it is compulsory to add PAN card to withdraw PF as my total amount is less than 25000. Does TDS deduct?

  22. Sam says:

    Hi I’ve not completed 5 years and due to emergency issues i have Requested for a PF Advance Claim for a amount of 100000 in the online portal.. Do i need to pay tax for this amount once it got transferred to my account. Please help me on this.
    Thanks,

    Regards,
    Sam

  23. J S PARMAR says:

    My son worked for 58 months from 2009 to 3024.he also worked in 2007 for 8 months.pF was deducted and credited to my account with EPF report. Two different accounts were maintained. Before withdrawal of PF the balance in earlier account was merged completing 5 years of service. After merging my son has withdrawn the entire amount in December 2017 but EPF DEPARTMENT has deducted TDS amounting to Rs32090.00 . Now advise me as to whether this withdrawn amount (PF +INTEREST FOR ENTIRE PERIOD)will form part of his income for the financial year 2017-18 OR SOME OTHER TREATMENT IS REQUIRED. THANKS J S PARMAR

  24. sandeep rathi says:

    :- If PF withdrawal is after 5 yrs of service and TDS deducted by EPFO due to whatsever reason then will such PF withdrawal will be exempt from tax or still taxable ??

  25. Ajay says:

    Sir
    I have worked in a Pvt company about 1.5 years and resign ed. If I withdraw my pf amount which is more than 30k how much tax they will cut.
    Since I don’t have any job currently so my income for FY 17-18 would be almost nothing so is this amount tax free?

  26. Anjali says:

    I had withdrawn my PF before 5 years and TDS has been deducted on entire amount as the amount was more than 50000. Please advise which all component of PF are taxable (employee’s contribution, interest on employee’s contribution, employer’s contribution and interest on employer’s contribution)?

  27. Anand says:

    Hi,
    I worked in a company for 4 years. After leaving company, I withdrew the PF, I was not aware of tax deduction policy. Now I want to exempt that from tax deduction.
    The PF money is in my salary account, is there any way to save that from tax? can I transfer that from salary account to my current employers PF account?

    Please suggest other ways to save this PF money from tax deduction.

  28. Deepak Panjabi says:

    Sir,
    I worked in X company of 7 years and now i m working in Y company from 3 years
    Already applied for House purpose Pf withdrow
    Want to know that if amount is reflact in my account it is taxable income or not

  29. Ashwani gupta says:

    Sir I workEd in a school from july2014 to dec2017 .around two n half year.. Then I gave resign in dec2017 because of govt job…so i withdraw my pf money in the month of oct2018.i want to know three things…
    1.my PF money is taxable or not??
    2.how can I know that tax is deducted of my pf money??
    3.usualy people says that pf department Firstly deduct the tax then release the remaining pf amount. Is this correct??

  30. Sagar Gupta says:

    I have rendered service in a private company for a period of 3years and 1 month. But I have withdrawn PF after 6yrs and 3 months from my first contribution.
    My joined in December 2010 and left the company in January 2014 and in April 2017, I have received my PF balance. But they have deducted tax @20%. Please advise me about how to get refund.

  31. Ranjan says:

    I was in a contract employment with a firm in India wherein the contract period was less than 5 years. Upon completion of my tenure of 4 years 9 months I was unemployed for more than 4 months during which I withdrew my PF contribution of 9.8 Lakhs on which a TDS of 10% was deducted by EPFO. Please clarify whether I am eligible for TDS refund and also let me know whether the remaining amount will appear as “tax exempted” income

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