5 years of steady service necessary for tax free EPF withdrawal

My question is concerning EPF withdrawal. I joined my earlier job on 23 September 2016 and final working day was 20 September 2021. If I’m unemployed for two months and withdraw the complete EPF quantity, will it entice tax? Also, do 4 years, 11 months and 28 days of service depend as 5 years of steady service? – Prateek Kumar

Answer by Dr Suresh Surana, founder, RSM India.

Investment in Employee Provident Fund (EPF) enjoys the standing of Exempt-Exempt-Exempt (EEE) i.e. Exempt on Investment, Exempt from Interest accrued thereon and Exempt on Maturity. However, these exemptions are topic to circumstances.

Five years of steady service is a compulsory situation to avail the good thing about exemption on withdrawal of quantity from EPF account. The Act specifies sure distinctive circumstances whereby even when the quantity is withdrawn previous to rendering 5 years of steady service, the identical is eligible for exemption. These distinctive situations are listed under:

If the service has been terminated due to:

a. The worker’s ailing well being; or

b. By the contraction or discontinuation of the employer’s enterprise; or

c. Other trigger past the management of worker

It is pertinent to notice that the Act says that whereas calculating the interval of 5 years, one must also have in mind the interval served underneath the previous employer/employers. There isn’t any such clarification supplied both within the Income Tax rules or the PF rules which states {that a} interval greater than 6 months is to be handled as 1 full yr. Hence, it may be inferred that right here the interval of 5 years implicitly means 5 accomplished years and since service as an worker was rendered by you just for 4 years, 11 months and 28 days i.e. 4 accomplished years, quantity withdrawn from EPF account could also be topic to tax besides in case he falls underneath the aforementioned 2 circumstances.

However, in case of steady unemployment for a interval of as much as one month, Section 68HH of The Employees’ Provident Fund Scheme, 1952, offers for withdrawal of 75% of the quantity excellent within the PF Fund. The steadiness 25% will be withdrawn after two months of unemployment.

Moreover, with a purpose to declare tax exemption, you could avail the profit as supplied by the federal government, vide notification GSR 225 (E) dated 27.03.2020, permitting for withdrawal of first non-refundable advance by EPF members within the present pandemic state of affairs underneath sub -para 3 underneath Para 68L of the EPF Scheme, 1952. Accordingly, you can be eligible for non-refundable advance of decrease of, 3 months of the essential wages and dearness allowances or upto 75% of the quantity standing to the credit score. The authorities has, in accordance with Announcement dated 31 May, 2021, additionally allowed its members to avail second COVID-19 advance on the identical standards.

(Have private finance queries? Send an e-mail to mintmoney@livemint.com)

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