Employees withdrawing money from their EPF accounts before completing five years of continuous service may face income tax liability and TDS deductions under existing EPFO and income tax rules.
The Employees’ Provident Fund Organisation (EPFO) rules regarding early EPF withdrawals have once again come into focus after reports highlighted that employees withdrawing provident fund savings before completing five years of continuous service could face income tax and TDS deductions.
The Employees’ Provident Fund (EPF) remains one of India’s largest retirement savings schemes, where both employers and employees contribute 12% of the employee’s basic salary and dearness allowance every month.
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Currently, EPF deposits earn an annual interest rate of 8.25%.
When full EPF withdrawal is allowed
According to EPFO rules, employees are allowed to fully withdraw their EPF balance only under specific situations, including:
- Retirement after 55 years of age
- Withdrawal of up to 90% after turning 54, one year before retirement
- Up to 75% withdrawal after one month of unemployment
- Full withdrawal after remaining unemployed for two months
Employees can also apply for online withdrawals without employer approval if Aadhaar is linked with the Universal Account Number (UAN) and KYC verification is complete.
Why early withdrawals may become taxable
Under existing income tax provisions, EPF withdrawals before completing five years of continuous service are generally treated as taxable unless certain exemption conditions apply.
The taxable amount may include:
- Employer contribution
- Employee contribution claimed under tax deduction
- Interest earned on EPF deposits
- Exemptions where tax may not apply
- Tax exemptions may apply in situations such as:
- Termination due to ill health
- Closure of the employer’s business
- Circumstances beyond the employee’s control
Experts also note that service periods with previous employers can be counted if EPF balances are transferred instead of withdrawn during job changes.
This means employees completing a combined five years of service across organisations may avoid tax liability and TDS deductions.
TDS rules on EPF withdrawals
The TDS deduction depends on the withdrawal amount and PAN availability.
According to existing rules:
- No TDS is deducted if withdrawal is below ₹50,000
- 10% TDS applies on withdrawals above ₹50,000 if PAN is submitted
- 20% TDS may apply if PAN details are unavailable
Employees whose total income falls below the taxable limit can also avoid TDS by submitting Form 15G or Form 15H.
Why EPF rules matter for salaried employees
The renewed attention around EPF taxation comes amid rising job switches, layoffs, emergency withdrawals and changing employment trends across India.
Financial experts continue advising salaried employees to avoid premature EPF withdrawals wherever possible because long-term savings benefit from compounding returns and tax-efficient treatment after crossing the five-year threshold.
At the same time, EPFO rules continue to provide flexibility for workers dealing with unemployment, medical emergencies or financial hardship.
Published: 20 May 2026, 11:34 am IST
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