TDS will be applicable at the rate of 10% if you have given your PAN. The rate will be 34.6% if you don’t submit your PAN. The Government had started deducting TDS on EPF withdrawals mainly to discourage premature withdrawals. Typically, people withdraw their PF whenever they change jobs.
When is TDS not deductible?
TDS won’t be deductible when:
- You transfer your PF from one account to another.
- You submit Form 15G (Form 15H for senior citizens).
- You have held your EPF balance for more than 5 years.
How is EPF taxed?
There was a lot of confusion regarding the taxation of EPF withdrawals. Now, the Government has clarified that there will be no tax on EPF ‘ever’. However, if you withdraw your EPF before the completion of 5 years, you will need to pay tax according to your tax bracket.
If you withdraw your PF before the account completes 5 years, you will have to forego all the tax concessions that were earned on your PF in the previous years. Also, earlier you would not have been taxed for the employer contribution to your PF. Now, if you withdraw your EPF, you will have to pay taxes on the employer contribution too. This is precisely the reason why you should be transferring your PF to another account whenever you change jobs.
Did You Know? This 5 year of continuous service does not apply if you are terminated due to ill-health or your employer’s business was discontinued?
When can you withdraw?
When you change jobs, you can withdraw from your EPF only 2 months after you leave the organization. Also, note that the withdrawal is subject to there being at least a 2 month gap between you leaving your previous firm and joining your current one.
Did You Know? Earlier when your account remained dormant for more than 36 months, your account would stop earning interest. However, recently the Government announced that inoperative accounts will earn interest from 1st April, this year.
How to check your withdrawal status?
It is easy to check your EPF status now that it’s all online. You can know the status of your EPF withdrawal claim by visiting the EPFO site (http://www.epfindia.gov.in/site_en/KYCS.php).
What to do with your EPF withdrawal?
EPF is meant for the long term. Ensure that even if you spend a part of the withdrawal on unforeseen expenses, a major chunk of your EPF funds should be reinvested for the long haul. You could consider investing in Mutual Funds and an ELSS fund can give you tax benefits. The average return from the top 10 equity funds in the last 5 years has been 25% per year, which is much higher than 8.8% offered by EPF. Whatever investment you choose, ensure that it will beat inflation. Of course, don’t forget, you also need to take taxation into account. Remember, EPF was meant for retirement and if you don’t have other plans for your retirement, you will have a lot of time to regret it, after you retire.