EPF Withdrawal: PF Account less than Five Years Old? Want to Avoid being Taxed? EPFO Advisory gives Relief

As per the Employees’ Provident Fund Organisation (EPFO) rules, if a Provident Fund (PF) account holder withdraws money from his PF balance within five years of account opening, there will be income tax applicable at source. However, in the recent EPFO notification giving EPF withdrawal relief during the Covid-19 lockdown, if someone withdraws money from PF account within five years, there will be no TDS or income tax applicable on the money withdrawal. According to the tax and investment experts, since the EPF withdrawal has been permitted under the disaster management relief package, TDS or income tax deduction in the given time limit i.e. 30th June 2020 will be applicable even on those EPF accounts that are less than 5 years old.

Speaking on the taxation rules involved in the recent EPFO relief on EPF withdrawal Pankaj Mathpal, Founder & CEO at Optima Money Managers said, “The EPFO relief on EPF withdrawal won’t attract TDS or income tax deduction at source in the case of EPF account being less than five years old. This is because this relief has been announced under special package of the disaster management of the government in its fight against Coronavirus.” However, he maintained that this tax exemption will be available only for the given time limit means 30th June 2020. After that, if there is no EPFO notification regarding extension of the EPF withdrawal relief then the existing EPF withdrawal should be considered closed and the existing EPF withdrawal rules during normal days will become applicable on each and every EPF withdrawal.

Elaborating upon the EPF withdrawal rules during normal days Manikaran Singhal, a SEBI registered tax and investment expert said, “EPF withdrawal within five years of the EPF account opening attracts income tax deduction at source. Apart from this, by PF withdrawal in normal circumstances, the salaried person is compromising his retirement fund. However, if EPF withdrawal has to be done in an emergency, then there should also be an urgency to pare the loss incurred in EPF account. For that, first and foremost is to asses, after PF withdrawal, how much returns they want from a new investment that would pare their loss in their retirement fund? After that, they can choose the investment tool like equity mutual fund, debt fund, NPS or any other option.”

Singhal suggested those people who are going for EPF withdrawal during the Coronavirus lockdown to start investing in the National Pension scheme (NPS) account choosing 50:50 option in the NPS type one account and NPS type two account. This will help them grow their money at around 9.5 per cent in the long-term investment.

So, those who are going to withdraw EPF during the EPFO relief package, should not feel worried about the income tax deduction at source as it is free from any kind of tax. But, after EPF withdrawal, their retirement fund is expected to get reduced and to pare that retirement fund, they should invest in NPS.

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