Be Aware About Tax on Your EPF Contribution & EPF Withdrawal

Rukmani Gupta Feb 6, 2020 2669 0

EPF (Employee Provident Fund) has four components: -

Employee’s Contribution
Employer’s Contribution
Interest on Employee’s Contribution
Interest on the Employer’s Contribution

There are three types of EPF (Employees’ Provident Fund): -

Recognized Provident Fund (RPF) – Fund approved by the commissioner of income tax.
Unrecognized Provident Fund (UPF) – Fund set up private companies not approved by the commissioner of Income Tax.
Statutory Provident Fund (SPF) – Fund set up for Govt or Semi Govt Employees & Govt owned Institutions & university employees.

Salary here means for EPF Exemptions is

Basic +DA +Commission if calculated as a % of turnover

Let’s first under the taxability on four components of EPF:-

1. Income Tax on EPF Employee’s Contribution (During Employment): -

RPF – Form part of gross taxable salary in the year of contribution but eligible for deduction u/s 80C up to 1.5 lacs

UPF - Form part of gross taxable salary in the year of contribution & no deduction u/s 80c is available

SPF - Form part of gross taxable salary in the year of contribution but eligible for deduction u/s 80C up to 1.5 lacs

2. Income Tax on EPF Employer’s Contribution (During Employment): -

RPF – Exempt from tax up to 12% of salary, any further contribution will form part of salary in the year of contribution

UPF – It is not taxable in the year of contribution by the employer.

SPF – Full Contribution of any amount is exempt from tax.

3. Income Tax on Interest on EPF Employee’s Contribution (During Employment): -

RPF – Exempt up to 9.5% rate of interest, any further interest will form part of the income from other sources in the year of receipt/ withdrawal.

UPF – Not taxable in the year of accrual. Full Interest is taxable in the year of receipt/ withdrawal as part of the income from other sources.

SPF – Total Interest is exempt from tax.

4. Income Tax on Interest on EPF Employer’s Contribution (During Employment): -

RPF – Exempt up to 9.5% rate of interest, any further interest will form part of taxable salary as profit in lieu of salary in the year of receipt/ withdrawal.

UPF – Not taxable in the year of accrual. Full Interest is taxable in the year of receipt/ withdrawal as part of taxable salary as profit in lieu of salary in the year of receipt/ withdrawal.

SPF – Total Interest is exempt from tax.

Let’s first under the taxability on four components of EPF (On Withdrawal):-

Income Tax on EPF Withdrawal from RPF (Recognised Provident Fund) -

PF Withdrawal from RPF after 5 years of continuous services is exempt from tax as under: -

Employee’s Contribution – Fully Exempt
Employer’s Contribution – Fully Exempt
Interest on the Employer’s Contribution – Exempt up to 9.5% rate of interest. Any further amount is taxable as part of taxable salary as profit in lieu of salary in the year of receipt/ withdrawal.
Interest on Employer’s Contribution - Exempt up to 9.5% rate of interest, any further interest will form part of the income from other sources in the year of receipt/ withdrawal.

EPF Withdrawal from RPF before 5 years of continuous service in case of a job quit except few conditions is taxable as below: -

Employee’s Contribution – Not Taxable but if the employee has availed deduction u/s 80C, then the income of previous years will be recalculated as if he has not availed any deduction.
Employer’s Contribution – Fully Taxable as part of Salary Income.
Interest on Employer’s Contribution – Fully-taxable as part of taxable salary as profit in lieu of salary in the year of receipt/ withdrawal.
Interest on Employee’s Contribution – Fully-taxable as part of the income from other sources in the year of receipt/ withdrawal.

In following conditions EPF withdrawal from RPF is not taxable even if he withdraws it before 5 years of continuous service: -

a. If the employee quits his job due to any of below reason: -

Ill health
The employer has discontinued his business
Any other reason beyond the control of employee

b. The period of continuous 5 years is not necessary to be with one employer if someone changes his job & transfers his RPF account with a new employer who also contributes to the account, then the period with old & new employer would be taken together to calculate 5 years of continuous service. But if someone works off the roll or on contract in between even if for a month, then the fresh period of 5 years will be calculated from the day he started working on the roll.

Income Tax on EPF Withdrawal from UPF (Unrecognised Provident Fund) -

Employee’s Contribution – Fully Exempt
Employer’s Contribution – Full Contribution is taxable in the year of receipt/ withdrawal as part of gross salary.
Interest on Employer’s Contribution – Full Interest is taxable in the year of receipt/ withdrawal as part of taxable salary as profit in lieu of salary in the year of receipt/ withdrawal.
Interest on Employee’s Contribution - Full Interest is taxable in the year of receipt/ withdrawal as part of income from other sources

Income Tax on EPF Withdrawal from SPF (Statutory Provident Fund) -

Employee’s Contribution – Fully Exempt
Employer’s Contribution – Fully Exempt
Interest on Employer’s Contribution – Fully Exempt
Interest on Employee’s Contribution – Fully Exempt

TDS on EPF Withdrawal

In following cases no TDS would be deducted on EPF Withdrawal: -

Any amount of EPF withdrawn after completion of 5 years of continuous service.
Transfer of EPF to the new employer on change of job.
If the EPF is withdrawn before 5 years of continuous service because of ill health, the employer’s business discontinuing or the reason beyond the control of employee.
If the amount of EPF Withdrawal is upto Rs. 50000, even if it is withdrawn before completion of 5 years.

In other cases, TDS would be deducted at following rate on EPF Withdrawal: -