Provident Fund is a scheme designed and controlled by Government of India for the Indian taxpayers. The primary purpose of this scheme is to secure post-retirement tenure of taxpayers. Investment in Provident Fund is classified in 2 broad types-
- Employee’s Provident Fund (EPF) – For salaried taxpayers only.
- Public Provident Fund (PPF) – For all taxpayers including salaried taxpayers.
What is Employee’s Provident Fund?
Employee’s Provident fund (EPF) is a fund administered by Employee Provident Fund Organization (EPFO) of the Government of India. Salaried taxpayer is required to contribute 12%, of his basic per month salary, to his EPF A/c. His employer will also contribute an equal amount in employee’s EPF A/c. Current interest rate for EPF A/c. is 8.75% p.a. This interest is cumulatively compounded. However interest changes year to year as per the recommendations made by EPFO.
What are the rules for withdrawal of amount from EPF A/c.?
Amount from EPF A/c. cannot be withdrawn as per the Provident Fund norms since the objective of this investment is to secure the post retirement life of taxpayer. However in certain cases, withdrawal from EPF A/c. is allowed.
In which situations a taxpayer can withdraw an amount from EPF A/c.?
Under following situations, a taxpayer can withdraw an amount from EPF A/c.-
- Repayment of housing loan – Taxpayer can withdraw upto 30 times of his monthly salary. However he can withdraw such sum only if he has completed 10 years of service. Further the house should be in the name of taxpayer or spouse or joint.
- Renovation of house- Taxpayer can withdraw upto 12 times of his monthly salary. However he can withdraw such sum only if he has completed 5 years of service. Further the house should be in the name of taxpayer or spouse or joint.
- Health Treatment- Taxpayer can withdraw sum for health treatment of self, spouse, children and parents. He is required to submit the evidence of expenses of treatment. However, the withdrawal amount is restricted to 6 times of his monthly salary.
- Marriage- If taxpayer has completed 7 years of service then he can withdraw funds from EPF A/c. for marriage of self, children or siblings. Taxpayer can withdraw upto 50% of his contribution. And such withdrawals could be done thrice in his career.
- Superannuation- If taxpayer attains age of 54, then he can withdraw upto 90% of the amount.
- Others- Taxpayer can withdraw funds from his EPF A/c. for some other reasons such as migrating abroad, leaving job due to physically disability etc.
What if taxpayer switches his job?
While opening an EPF A/c., every salaried taxpayer was allotted Unique Account Number (UAN) from authority of EPF. Since this number is unique for every salaried taxpayer, he can change his A/c. as per new job but can continue this A/c. even after switching his job. All the balance in his EPF A/c. will remain intact.
(Note- Withdrawal of sum from EPF A/c. due to change in job is illegal.)
When a taxpayer can close his EPF A/c.?
Taxpayer can close his EPF A/c. only at the time of his retirement from service. However in following 2 cases taxpayer is allowed to close his EPF A/c. and withdraw the sum-
- Leaving employment forever- If taxpayer leaves his job and decides not to continue another with another employment, he can close his EPF A/c. Generally this case occurs where taxpayer leaves his job and starts his own business/profession.
- Two months period- If taxpayer leaves a job and wishes to join new employment. However, if he was unemployed for more than 2 months, then he can withdraw the sum.
What is the tax treatment for withdrawal from EPF A/c.?
The taxation rules in case of withdrawal from EPF A/c. are as follows:-
- If taxpayer has completed 5 years of his service, then any withdrawal from EPF A/c. as per the abovementioned rules is not taxable.
- If taxpayer withdraws an amount from his EPF A/c. even if he has not completed 5 years of his service, then such amount is taxable and TDS is required to be deducted.
- In case taxpayer provides his Permanent Account Number (PAN), TDS at 10% shall be deducted. On the other hand, if taxpayer does not provide his Permanent Account Number (PAN), TDS at 30% shall be deducted.
- However a monetary limit is given for deduction of TDS. If the taxable withdrawal is more than Rs. 30,000/-, then no TDS is required to be deducted.