Many employees believe that if TDS is not deducted when withdrawing EPF, the entire amount is tax-free. However, this belief is not entirely accurate. According to tax experts, non-deduction of TDS and non-levy of direct tax are two different things. The final tax to be paid is determined when filing your income tax return (ITR).

If an employee has completed 5 years or more of continuous service, there is generally no tax on EPF withdrawals. Continuous service does not necessarily mean working for the same company for 5 years. Transferring EPF from the old company to the new company's account after changing jobs also counts as continuous service. Therefore, EPF withdrawals after completing a total of 5 years are tax-free.

However, if EPF is withdrawn before 5 years, the amount is often tax-free. In such cases, TDS is not deducted on amounts up to Rs 50,000. However, this does not mean that the amount is tax-free. The total income may be taxed when filing ITR. If the amount withdrawn before 5 years exceeds Rs 50,000 and the PAN card is up-to-date, a 10% TDS is deducted. If the PAN card is not available, TDS may be charged at a higher rate.

Under certain circumstances, exemptions may be available even before the completion of five years. EPF withdrawals are exempt from tax in the event of termination of service due to serious illness, company closure, or other reasons beyond the employee's control. Furthermore, tax deductions taken under Section 80C may be reconsidered.

 PC: Rochak Khabre