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EPF withdrawal tax rules: When is premature Provident Fund withdrawal taxed?

Withdrawing EPF before 5 years of continuous service can lead to income tax liability, often with TDS deductions. While PAN ensures 10% TDS, its absence raises it to 34.6%. However, transfers, health reasons, company closure, or withdrawals under Rs 50,000 (with conditions) are exempt. EPF typically offers EEE tax benefits after 5 years.

EPF_withdawal
EPF_withdawal Credit:EPFO and Pixabay
| Updated on: Nov 13, 2025 | 03:35 PM

New Delhi: Employees' Provident Fund (EPF) is a government-controlled savings scheme that provides financial security to salaried people after retirement. Let’s see if an employee withdraws his EPF before completing 5 years of continuous service, then income tax is levied or not?

If an employee withdraws his/her Employees' Provident Fund (EPF) before completing 5 years of service, then he/she can be taxed. In this situation, EPFO usually deducts TDS. Whereas, if the employee has given a PAN number, then 10% TDS is deducted. This deduction applies to the contribution and interest earned by both the employee and the employer (Employer), but if the employee has not given PAN, then the TDS rate increases to 34.608%.

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TDS is not deducted in these scenarios

  • When PF is transferred from one account to another PF account.
  • If the employee's service ends due to health problems, business closure of the company, project completion or reasons which are beyond its control.
  • If the employee withdraws PF after completing 5 years of service.
  • If the PF payment is less than Rs 50,000 and the service is less than 5 years.
  • If the withdrawal amount is Rs 50,000 or more and the service is less than 5 years, but the employee submits a PAN with Form 15G or 15H.

According to the EPF scheme, continuous service done under previous employers is also added while counting the service period. If the service of an employee is stopped due to illness, accident, legal strike or leave, then that too will be considered a continuous service and it will not be taxed.

Tax benefits of EPF

The amount deposited under the EPF scheme is exempt from tax at three levels. First - contribution, second - interest and third - on maturity amount. This scheme falls under the

Exempt-Exempt-Exempt-Exempt (EEE) category. In the old tax regime, an investment of up to Rs 1.5 lakh in EPF in a financial year is eligible for tax benefits under Section 80C of the Income Tax Act. At the same time, in the new tax regime, tax deduction is available only on the contribution of the employer, which is limited to 12 percent of the basic salary and DA. If an employee serves more than 5 years, then both the interest and maturity amount earned on EPF are tax-free.

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