The Employees’ Provident Fund Organisation (EPFO), the retirement fund body, has introduced amendments that now permit its subscribers to withdraw up to 75 per cent of the accumulated EPF a month after quitting a job. The remaining fund can be withdrawn if they remain jobless for over two months.
This amount, however, will be taxable if the subscribers do not stick to the job for at least five years. The organisation has taken several steps over the years to simplify the withdrawal process for its subscribers. It now allows subscribers to apply for fund withdrawal online and the money is credited faster than it used to be earlier.
However, since the fund is actually meant to help the subscribers in their old age, that is, post retirement, the Government has introduced the tax clause to discourage people from using up that money earlier.
If the subscriber changes jobs, and gets the EPF transferred to the new employer, the duration of employment at the new job is also taken into account while calculating the continuous period.
If the period of service in total comes to less than five years, the accumulated balance withdrawn will be taxed in the financial year in which it has been withdrawn.
EPF is made up (a) contribution from the employee (b) contribution from the employer and (c) interest earned from both contributions (a) and (b).
If the continuous service period is less than five years, the total contribution by employer plus the interest earned on the same becomes taxable under the ‘salary’ head in the employee’s/subscriber’s income tax return.
The contribution made by the subscriber/employee which makes up the withdrawal amount is not taxed. However, it will be taxed if the subscriber is learned to have claimed deduction under Section 80C on his contribution in the past. The subscriber’s own contribution towards the fund is eligible for deduction under Section 80C of the Income Tax Act. So, the interest earned from that portion may be taxed under ‘income from other sources’.
If the subscriber withdraws the amount before five years of continuous service, 10 per cent tax is levided in the form of tax deducted at source (TDS).
In cases wherein the amount accumulated is less than Rs 50,000 or in cases where the employer has shut shop, no TDS is levied.