Each and every investment you make has to go through three different stages i.e., i) Investment / Contribution stage, ii) Income Earning Stage & iii) Withdrawal or redemption stage. In each stage the investments/earnings can either be Taxed (T) or Exempted (E) from the taxes.
Same is the case with your contributions to EPF (Employees Provident Fund) Scheme. The deductions towards EPF (Employee share) are eligible for tax deduction under section 80c. This is in the investment phase. Your PF Deposit earns ‘interest income’. This is tax-exempt (subject to certain conditions). When you withdraw your EPF balance, the withdrawal is tax-free (subject to certain conditions).
So, it is a widely held belief that EPF falls under Exempt-Exempt-Exempt Category. Is this assumption totally true?
Are EPF interest income and withdrawals tax-free, irrespective of when you withdraw the funds? What if you remain unemployed, do not contribute to EPF for few years and then withdraw it? What would be the tax implications on such PF withdrawals? Is interest payable even if you do not contribute to EPF scheme? – Let’s discuss….
Is EPF Interest income Taxable or Tax-free? How are EPF Withdrawals taxed?
Below are the taxation rules applicable for EPF withdrawals & interest income earned on PF contributions, under different scenarios.
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EPF Withdrawal before 5 years of Service:
- If you withdraw your EPF balance before completing 5 years of continuous service, it is considered as a taxable income.
- However, members whose service has been terminated due to his ill health, contraction or discontinuance of business of employer or other cause beyond the control of the member, no income tax (TDS) shall be deducted as per Rule 8 of Fourth Schedule to the Income Tax Act, 1961.
- if you withdraw your PF balance before the expiry of five years of continuous service, then it is taxable in the year in which withdrawal has happened. (Related article : ‘EPF withdrawals & TDS rules.’)
- In addition to this, your employer’s contributions along with the accumulated interest amount will be taxed as ‘profits in lieu of salary’.
- Interest accumulated on your (employee) contributions will be taxed under the head ‘Income from other sources‘. The tax deductions claimed on your contributions will be revoked or rolled back, and shall be liable to tax. (Read : ‘7 ways you could lose your Income Tax Benefits.‘)
- If you withdraw your EPF balance before completing 5 years of continuous service, it is considered as a taxable income.
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EPF withdrawal anytime after 5 years of service, immediately after leaving the job:
- If you withdraw the EPF balance after completing 5 yrs of service, then EPF balance is not taxable. So, in this case, it falls under E-E-E tax category.
- The interest income is considered as an Exempt income under Section 10(12) of the IT Act.
- For calculating the period of 5 yrs of service, it is not necessary that service should be continued with the same employer. You may have worked in different organisations. But whenever you change the job, must get the PF balance in previous company transferred to new company PF Account. (Related Article : ‘EPF a/c auto-transfer Procedure.‘)
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EPF withdrawal (after 5 years of service) after few years of non-contribution:
- The ITAT (Income-Tax Appellate Tribunal) in one of its recent orders has clarified that the EPF interest income is taxable, if PF member is not employed. ‘Any interest income accrued on EPF post retirement/resignation is taxable in your hands.’
- If you resign/retire/get terminated from your job, but do not withdraw your EPF immediately then interest income earned on your EPF balance is taxable during this non-contributory period. The interest income earned during your employment remains tax-exempted though.
- For example : Let’s say you have joined a company and started contributing to EPF Scheme at the age of 25 years. After remaining employed till the age of 40 years, you decide to quit and start your own business venture. However, you decide not to withdraw your EPF immediately (as EPFO pays interest income even if one does not contribute to EPF). At the age of 55, you decide to withdraw EPF. In this scenario, what are the tax implications on the accumulated EPF interest income and withdrawal of PF balance?
- The interest income accumulated during your employment period (from 25 years of your age till 40 years) is tax-free income.
- The interest income earned during the non-contributory period (i.e., from 40 years till 55 years) is a taxable income (though your total service period is more than 5 years).
- The interest accrued in each financial year during the non-contributory period should be declared in your Income Tax Return under the head ‘income from other sources’ and taxes (if any) have to be paid. So, interest income is taxable in the year in which it is accrued (on yearly basis).
- Kindly note that the EPFO pays interest income on all EPF accounts till an EPF member attains the age of 58 years. But, the interest accrued from the year of unemployment (due to resignation/termination/retirement) till you actually withdraw your EPF is a taxable income.
- On the other hand, if an employee retires after 55 years of age, then post three years from the date of retirement (i.e., after 58 years), his/her EPF account is treated as “inoperative” and does not earn any interest.
- In case, you are contributing to a Recognized PF maintained by a Private Trust of your Company (Exempted Organisation), any interest exceeding 9.5% shall be added to your (employee’s) Salary Income and is subject to income tax.
- Transfer of EPF & Tax implications : Income tax is not applicable on transfer of funds from one EPF account to another EPF account (or) on consolidation of multiple EPF accounts into one EPF account. (Read : ‘How to consolidate multiple EPF accounts?‘)
Latest update (01-Feb-2021) : Budget 2021 – No more tax free interest on more than Rs 2.5 lakh a year contribution towards EPF/VPF (only employee contribution).
- If employee contribution is more than Rs 2.5 lakh, the interest earned on the excess amount is taxable for contribution from 1st April 2021 onwards.
- Example – If employee share EPF + VPF is Rs 4.5 lakh in FY 2021-22. The interest earned on excess Rs 2 lakh (Rs 4.5 L – Rs 2.5 L) will now be taxable.
- Read : Interest on EPF Contributions above Rs 2.5 lakh is Taxable | Budget 2021
Hope you find this post informative and useful. In case, you have any query related to EPF account, kindly post it in the below ‘comment’ section.
Latest news (March 2021) : EPF interest rate for 2020-21. The Central Board recommends 8.50 % rate of interest to its subscribers for the year 2020-21. EPFO notifies 8.5% as interest Rate on EPF for the year 2020-21.
The previous FYs EPF interest rates are as below;
- FY 2019-20 : 8.50%
- FY 2018-19 : 8.65%
- FY 2017-18 : 8.55%
- FY 2016-17 : 8.65%
- FY 2015-16 : 8.80%
- FY 2014-15 : 8.75%
- FY 2013-14 : 8.75%
- FY 2012-13 : 8.50%
Continue reading : ‘How is interest on EPF account calculated?‘
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net) (Post published on : 12-December-2017)
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Hi Sreekanth
I resigned from working with a company after 8 continuous years of service on 31st October 2020. After 2 months i.e. in Jan 2021 i applied for withdrawal of pf. I received the money in mid feb 2021. after i received the pf amount i applied for withdrawal of eps which i received yesterday after a deduction of around 10 %. The pf amount was received fully without any deduction while the eps amount was reduced by around 10 %. I read on the net that if we withdraw eps before 10 years, tds is applicable on the whole amount, which unfortunately i was not aware of. Though my eps becomes taxable, just wanted to reconfirm that there shall be no tax on pf withdrawal as service was for 8 years (more than 5 years). again reiterating that i received the pf amount in total without any deduction, no tax on pf becomes due just bcoz. eps withdrawal has become taxable.
Regards
Mahalakshmi
Dear Mahalakshmi,
Your understanding is correct (Claims are tax-exempt if service is 5 + years).
You may claim the TDS as refund (if any) while filing your ITR for AY 2021-22..
HI Sreekanth,
Found your blog so I have question regarding EPFO Interest in EPF passbook. I left my organisation in Sept 2019 (after 16 years of continuous service) and withdrew my entire EPF amount in Oct 2020.
When I checked my EPFO passbook today – there are 2 weird looking entries
1) Int. given against Claim 189 884 (Employee Share) and 166770 (Employer Share) (this entry is just after the entry for Feb 2020 showing 0 contribution for employer and employee)
2) Again there is another entry “Int. given against Claim : PUPUN200950097016 103928 (employee share) 91276 (employer share). this entry is just after Feb 2021 entry (which naturally shows 0 contribution for employer and employee).
Hence – when i file returns for FY 2020-21, do I need to show these entries in my income?
If so which of these 2 ‘interest against claim’ entries do I need to show as income (from other sources) ? Again – do I need to add up both employee share + employer share (from the ‘Int against claim entry) for tax purposes?
Dear sanjeev,
Even I am not sure on this, you may submit a grievance request to them via this link and ask for the required information..
Hi Srikanth,
i need information whether tax will be deducted 10% or 34% if pan is not approved by employer. currently unemployed, my employee share and employer share is 60k. aadhar and bank is verified.pan is verified in income tax return but epfo kyc details showing kyc under approval.if apply for full pf withdrawal, will be taxed or free?
Dear Megha,
You can follow it up with your employer and get the KYC approved!
Kindly go through this link – EPF Withdrawals : New Provisions & Rules related to TDS
Hi Sreekanth,
Thank you for the information. i need 1 more clarification that : can i delete pan details(kyc pending for approval – not approved by my employer more than 6 months) and update pan details from my account in EPFO account and try withdrawing full pf amount. Is it possible to withdraw pf without tax deduction.
Dear megha,
Yes, you can update your KYC details again.
Please note that if your service period is less than 5 years, your EPF claim amount is a taxable income (whether TDS gets deducted or not).
In case, your tax liability for the the concerned Financial year is nil and EPFO deducts TDS, you can claim it as Refund by filing your ITR.
Hi Sreekant,
Thank you for clarifying my doubts on above issue.
There was TDS deduction on on the Interest earned on Provident Fund
accumulations for FY 2019-20, Can I claim the TDS on this?
Dear Syed,
If eligible, yes you can claim..
I had retired on November 2017 . Pf amt withdraw on July-2020.In this case interest amt taxable or not.I have not shown in ITR PLEASE Me.
Dear Dinesh ji,
Kindly note that the interest earned during ‘non-contribution’ phase is a taxable income.
Related article :
* EPF Interest Income & Withdrawals | Tax Implications | Is EPF Interest taxable?
Hi, I have more than 5 years of experience in three different organizations. I have one UAN number and 3 pf accounts. Recently I transferred all my pf balance into the present employer account. But when I go to withdraw it is showing my date of joining epfo as Jul 2017 and end date as Nov 2019. So my service is less than 5 years. But actually I have transferred the balance for my entire 7 yrs into this account. Will I be considered as someone with more than 5 years of service or will TDS be deducted from my account.
Hi,
I have worked form last 7 years in one company then I left the job in FY 2014-15. In Year 2017, I have again joined the new company and transferred my previous PF into current PF account. Now I have resigned the job again and unemployed from last 6 months. So, Now Can I withdraw my PF amount and the amount withdrawal will be taxable or not?
Dear Deepak,
As you have consolidated your EPF accounts, your previous service period would also have got carried forwarded.
As your service period is more than 5 years, your claim amount will be tax-exempt.. If your service period is more than 10 years, you cant withdraw EPS balance.
Related articles :
* Online EPF Claim submission : Process Flow & Eligibility Conditions
* What happens to EPS on Transfer of EPF account (or) when you switch Jobs?
Thanks Sreekanth for your reply.
As I have withdraw my EPF amount last week but PF officer cuts the 10 % TDS on the withdrawal amount.
What should I do to get the same?
Dear Deepak,
Has your PAN been verified in UAN portal?
May I know the claim amount?
You can claim it when filing your Income Tax Return for the Assessment Year 2020-21.
Hi Sreekanth
My PAN and Aadhaar , both were verified. Ok, I will claim in Income tax return. Thanks
One more questions, I am planning to join job again next month, As I have completely withdrawal my PF (Employee & Employer) amount ,then for the next time, my previous service history will be calculated or not for tax exemption?
Dear Deepak,
Your previous service becomes NIL as you have withdrawn full EPF balance, it wont get carried forward.
Hi Sreekanth,
I have relived from one company currently, and the PF corpus is managed by teh company TRust, so tehy are calling me frequently to withdraw teh PF amount, which i’m reluctant as there is some ample amount and i want to earn inetrest which is taxable, how to handle this employer and what to do as its a Trust and not EPFO.
Dear Bina,
As per the EPFO guidelines, an EPF member of a PF Trust can also hold the funds in his/her EPF account till retirement age. The interest has to be credited.
But, the interest income accumulated during the non-contribution phase is taxable income.
Hi Sreekanth,
After 12+ years of service, I was laid of (forced resignation) 2 years back as part of company’s workforce trimming exercise. I did not withdraw my EPF balance then, thinking it’s my savings for retirement. Meanwhile, EPFO has credited interest for FY16-17 and FY17-18 in December 2018 with transaction date as 31-March-2018. For FY18-19 they are yet ot process interest). As per your article, I understand, this interest is taxable, since I am not contributing to EPF for last 2 years. My questions are;
(1) Do I need to pay tax now or at the time of withdrawal?
(2) If I have to pay tax now, Should I show the EPF interest earned for FY16/17 and FY17/18 in this year’s ITR (as the amount was actually credited in September 2018)? If not, now how should I handle this?
(3) Would the EPFO office deduct 10% TDS at the time of withdrawal when I do it in future? Note I have already provided PAN to them and its linked to my account.
(4) In case if EPFO account becomes Inoperative after 3 years of non-contributing period, do EPFO continue to pay interest?
Awaiting your response. Thank You.
Dear Jayant,
1 & 2 – You need to disclose the interest income received for FY 2017-18 during aug to dec 2018 in ITR AY 2019-20. For 2016-17, you should have disclosed interest income in ITR AY 2018-19.
3 – If PAN is seeded and digitally verified in EPFO unified member portal and also your service period is more than 5 years, EPFO may not deduct taxes.
Note that the interest amount accumulated till 2 years back is tax-exempt income on withdrawal.
4 – There is no concept of Dormant EPF accounts now.
Related articles :
* How to verify PAN online in EPF UAN Member portal?
* Interest on Inoperative EPF accounts | Will I get interest on my Dormant EPF account?
Thank you very much Sreekanth for prompt reply. In my case even for FY16/17, they had credited interest in Dec 2018; the delay was due to some processing issue from EPFO side. So shall I club together interest for both FY16/17 and FY17/18 together and show that in ITR?
Also under what head do I need to disclose this income in ITR?
Thanks again.
Dear Jayant,
I believe that you can club the payouts and disclose it under the head ‘income from other sources’.
You may kindly cross-check with a CA as well..
Hi Sreekanth, I understand that interest earned on EPF balance during non-contributing period is taxable, we must declare it in every year’s ITR and pay tax accordingly. However, EPFO never care to process interest before end of July (i.e. last date of filing ITR). Even this year also they have not processed interest for FY-18/19 yet. Last year they processed interest for FY-17/18 in November, when ITR was already filed and processed. So how can I show EPF interest in ITR? Shall I show interest earned for FY-17/18 in this year’s ITR? Is it right?
Dear Jay,
Yes, you can consider the Transaction date (date of credit).
For FY 2017-18, interest amount amount would have been paid in FY 2018-19 (AY 2019-20).
Related articles :
* AY 2019-20 Income Tax Return Filing | Which ITR Form should you file?
* Income Tax Deductions List FY 2018-19 | List of important Income Tax Exemptions for AY 2019-20
Thank you Sreekant for prompt response. But note that we may not know the exact transaction date since the EPFO passbook does not show the transaction date. In the first “Particulars” column it just have an entry as “Int. Updated up to 31/08/2018” (i.e. last date of last financial year), when the actual entry was posted, only EPFO officials knows; even their customer care is blank about it. I am sure they did in November, since I had checked the passbook in last October month and then there as no entry for it. So question is; is it right show interest earned in last Financial year (FY-17/18) in this year’s ITR (FY-18/19)?
Dear Jay,
EPFO generally pays the accrued interest of a particular FY on EPF accounts next FY only. So, I believe that you can disclose FY 2017-18 accrued interest but paid in FY 2018-19, in ITR of AY 2019-20.
Thank you very much Sreekanth. I appreciate your guidance.
sir mera pan card verifiy nae h..maine 1 saal services kre h..total amount+pension 26000 h..tds catega without pan card..tell me plzzz
Dear Sanjay,
If EPF claim amount is less than Rs 50k EPFO should not deduct TDS.
But, if PAN has not been seeded and verified in UAN portal, EPFO can deduct TDS.
i have contacted Sree Sir in Linkedin regarding my PF account, My Employer was not approving my DOB Change. He has suggested me and solved my problem.
Your the BEST OF ALL and Give the Positive thoughts, You have answer for everything.
Dear Sreekanth,
I have a work ex of 2 years and resigned one month ago to pursue my Masters abroad. I wish to withdraw the entire PF and Pension amount.
I have linked my Aadhaar and bank details on EPFO portal but unable to link my PAN(verification problem).
My PF(Employer+Employee) amount is approx 40k till date and 20k as Pension.
If I file claim form after 60days of my unemployment separately for PF and Pension, will it attract tax?
Many Thanks in advance.
Dear Mubeen,
Yes, it is a taxable income.
Dear Sir,
I was work in a company for 4 and half years and PF amount is 158000/- i have entered pan but not verified.How about the TDS deduction rate if 34+% can i claim the same?
I have feed the PAN details it is showing in the portal but not verified.
please suggest.
Dear DHEERENDRA,
As your service period is less than 5 years, whether TDS gets deducted or not, such withdrawal is a taxable income.
In case, they deduct 30% TDS and let’s say you are in 20% tax slab then you can claim the balance amount as Refund when you file your ITR.
I have an EPF account which has been inoperative since May 2016. In April 2019 it will be 3 years since the last deposit to the account. Can you advise if the interest earned on the account from May 2016 to April 2019 is taxable or the interest after completion of 3 years is taxable.
Dear Uttam,
Interest earned during 2016-19 is a taxable income.
Related article : Interest on Inoperative EPF accounts | Will I get interest on my Dormant EPF account?
Hi, I left my job after 4 years of continuous Service and now started my own company. I don’t intend to Withdraw my PF balance until retirement age. Does my EPF balance becomes taxable income this year?
Also what about the interest I earn on this balance? I think that would be taxable as normal interest income. Kindly let me know if my understanding is correct.
Dear Mukesh,
Interest income earned till the date of your Exit is not taxable.
Interest earned during non-contribution period is taxable in the respective Assessment years.
Hi Sreekanth,
I have completed 4 years of service. It is possible to partial withdrawal of EPF amount for purchasing Plot or Flat? and its taxable? and How much percentage of amount can i withdraw for the above purpose?
Kindly reply me to my mail. i appreciate your valuable time spending for me, thanks
Dear Gopi,
Kindly note that EPF partial withdrawals are not taxable.
Kindly go through this article : EPF partial withdrawal options and rules..
Hi Sreekanth,
I have completed almost 4.5 years of total service in India and moved abroad for a new job 1 year ago. I want to withdraw my PF and Pension amount. Will it be considered Taxable income?
Dear Rahul.. Yes, it is a taxable income.
I switched to a new company and I didn’t transfer the EPF and will do the same soon and have no intention of withdrawing it.
So, is the interest that I got till now from the old company is taxable?
Dear Hemanth ..If there is no non-contributory period in between then the accumulated interest on your EPF account(s) is not taxable.
Related article : What happens to EPS on Transfer of EPF account (or) when you switch Jobs?
Dear Mr. Sreekanth – I left my job in 2014 and have kept the EPF to earn interest. Is the entire interest on EPF post leaving the job taxable or the interest on the balance on date of leaving is exempt. What happens to the previous years prior to the new ruling? Is it taxable on accrual basis or on withdrawal only? Should we not take it up with Government to change this decision? Thanks.
Dear Mohan,
The interest on EPF balance post leaving the job taxable.
Kindly note that it is not a new ruling.
Ideally one has to show the taxable income on accrual basis in his/her ITR.
Hi Srikanth, In this case does EPFO takes care of TDS on the interest income, or the assessee needs to pay the tax and refer it in his ITR? Also where one have to report this interest in ITR-1? Is it under head “Income under other sources” by clubbing it with bank interest or somewhere else?
Hi Srikanth, I got the answer for my second question when I went thru QA section. Sorry, but I have one more question. Does interest earned on both Employee’s contribution as well as Employer’s contribution is taxable OR its just interest earned on Employee’s contribution? Thank you.
Dear Vai,
Your employer’s contributions along with the accumulated interest amount will also be taxed as ‘profits in lieu of salary’.
Thank you Srikanth, You mean to say I need to pay tax on employer’s contribution till date as well? Why?
Sorry I got confused with your answer. Since I am no longer working for past 2 years, there is no contribution either from me or from ex-Employer. The only addition is in form of interest credited by EPFO on the Employee contribution and Employer’s contribution. My questions were specific (1) Do I need to pay tax on entire interest credited to my account OR only for interest credited for on the accumulated portion of Employer’s contribution. (2) Where do I show this interest on my ITR? Is it under head “Income under other sources” by clubbing it with bank interest or somewhere else? You had mentioned ‘profits in lieu of salary’. Note that I have NOT withdrawn any amount from my EPF account. So please clarify. Thank You.
Dear Vai,
In case, you have not withdrawn any EPF amount then the entire interest paid on your EPF balance is taxable under the head ‘income from other sources’.
That makes sense. Thank you Sreekanth. Also I appreciate you for responding to queries from all of us patiently, its great community service by you.
Thank you dear Vai ..Keep visiting ReLakhs!
Dear Mr. Srikant,
Went through your beautiful and useful clarifications through this portal.
Well, I have a doubt pertaining to charging IT on PF accrued interest kept with Provident Fund even after retirement.
This issue of interest accrued is chargeable to IT has come to surface consequent to the ITAT Banglore’s decision. How can such a thing be applied retrospectively?
Retirees should have been informed on the eve of retirement of such a provision so that they could have decided to continue or withdraw. Further, had it been indicated then, TDS or on filing Return, Tax could have been paid on that.
Now expecting the person who withdraws to pay IT on the accumulated interest of previous years, is not ethical.
No doubt, retirees keep the PF Balance with the Fund as an Investment decision only.
Was there a further appeal in the ITAT Case of Bangalore?
How the Grievances of those retirees who continue to park their balance with the PF can be alleviated?
IT Department may kindly bring out an announcement, as a sort of gesture to such cases, by asking them to pay IT on the interest payable for the AY 2018-19 onwards.
Will you be able to appreciate the points put forth and shed light on the same?
Ravikumar
Dear Ravikumar,
Kindly note that this not a new Tax rule. The interpretation of an existing tax rule by most of us has been wrong.That’s it!
Agreed Mr. Sreekanth that it is a matter of interpretation. Even then it should be prospective, and more importantly since we do receive the interest it should be payable on withdrawal only. I agree with Mr. Ravikumar that like PPF this interest must also be exempt till retirement i.e. 58 age, and we must all represent to the government about the same. Thanks.
Dear Mohan,
Agree with your views! But, unfortunately, that’s how the tax law has been framed w.r.t EPF withdrawals..