The Employee Provident Fund (EPF) is a retirement saving scheme managed by the Indian government. Salaried employees contribute a certain amount of money to this fund each month. The employer provides an equal amount. Over the years, the employee earns interest on both these contributions. The scheme is popular because it is an excellent way to create a sufficient corpus for retirement.
In this article, let’s discuss some rules you need to know regarding withdrawal from the fund.
When can you withdraw your EPF
As an employee, you can remove your EPF in the following three cases:
a) At the time of retirement, i.e., 58 years or above
b) Untimely death before the retirement age (benefit goes to family members)
c) In case you are unemployed for a period of two months (75% after the first month of unemployment, and the rest after two months)
Income tax exemptions
In case you have contributed to your EPF for more than five years, the amount you receive at the time of withdrawal is exempt from income tax. However, if you withdraw before five years, the amount you withdraw is liable to be taxed. This means you need to show this amount in your tax return for the next assessment year. The contribution from your employer as well as the interest you earned is added to your income and taxed accordingly.
Sometimes, an employee can be terminated from their job due to specific reasons that are beyond their control: poor health, the shutdown of business by the employer etc. are a few examples. In such situations, your EPF withdrawal is not taxed regardless of how many years you have worked. So, even if you withdraw before five years, the amount would not be imposed in this situation.
EPF contributions after retirement
Many people continue to contribute to their EPF even after quitting their jobs. They may not be employed, but their EPF account is still active. It continues to earn interest each month. In such cases, the interest accumulated after you leave your job is taxable.
In other words, if you leave a job, but you don’t withdraw your EPF balance or transfer it to a new employer, you are eligible to pay tax on the interest earned on your fund.
The Employee Provident Fund Organisation (EPFO) has come out with a simple one-page form that facilitates easy withdrawals. Subscribers who have seeded their EPF account with Aadhaar number and bank account details can submit the claim form directly to the EPFO without requiring the employer’s attestation.
In addition, you don’t need to provide any other document to take advances from your EPF corpus. This single-page document is enough to avail partial withdrawals for specific purposes like medical costs, purchasing a house, funding education or marriage expenses of your children.
With around five crore subscribers in the country, EPF is one of the most popular saving schemes in India. But when it comes to withdrawing from your fund, ensure you are aware of the above rules to minimise your tax outgo and increase your retirement income.