EPF New Rules for Deposits and Withdrawals in India

The Employee provident fund scheme is one of the popular saving schemes for salaried people. It is a long-term investment scheme that requires contributions from employees partially from their salary, from employers, and from the government. For employees, it is a scheme governed by a statutory body Employee Provident Fund Organization which assures timely receipt of contributions and withdrawals by the employees before or after their retirement.

Why consider investing in EPF (Provident Fund)?

Other than having tax implications, the Employee Provident Fund scheme is a secure option to earn interest by the time the EPF account is left dormant by the employee. Compared to the interest provided by banks and other schemes, EPF provides higher interest rates and tax benefits to the employee. The linked benefits of investing in EPF include:

  1. Tax exemption on contribution under Section 80C and avoidance of TDS deduction by filling income tax form 15G.
  2. Retirement support to employees as regular deposits in EPFO ensures a healthy corpus for retirement.
  3. The scheme offers a relatively higher interest rate on deposits.
  4. The benefit of partial withdrawal from the scheme works as a savior in case of urgent need of funds by the employee for meeting some specific needs.

Purpose and Limits for PF Withdrawal

From EPF, employees can withdraw the entire sum accumulated in the EPF account at the time of their retirement. Other than retirement, premature withdrawals from the account can be made in the following situations:

  1. For medical emergency: Share of employee contribution with interest can be withdrawn for treatment of self, children, parents, or spouse before 5 years.
  2. For repayment of home loan: Out of the total corpus, about 90% of the contribution can be withdrawn from the account after 3 years of the completion for payment of home loan taken for self or joint property purchase.
  3. For weddings: With a lapse of 7 years, about 50% of the funds can be withdrawn for self, child, or sibling marriage.
  4. For renovation or reconstruction of the house: Amount for up to 12 times the monthly salary can be withdrawn for renovation or reconstruction of the house held in name of self / jointly with spouse after 5 years.
  5. For the construction/purchase of a new house: PF withdrawal for about 36 times the monthly salary for the purchase of a new house and up to 24 times for the purchase of a plot or construction of a new house can be done after 5 years of service.
  6. For pre-retirement withdrawal: After completing the age of 58 years, 90% of the total corpus can be withdrawn from EPF.
  7. For the financing phase of unemployment: About 75% of the corpus can be withdrawn if the employee is unemployed for more than a month and the rest 25% if unemployed for more than 2 months.

New Rules for EPF Deposits and Withdrawals

For withdrawal of PF, an employee requires a UAN (Universal Account Number) as allotted by the EPFO. The UAN can be used to check the status of EPF contributions, EPF, change of employer, EPF withdrawals, and all related services to EPF. Along with UAN, certain EPF rules are also provided for withdrawal and investment in EPF by EPFO for employers and employees.

Without compliance with EPFO rules, funds from the EPF account cannot be withdrawn. Here is a list of updated rules to follow concerning EPF:

  1. For withdrawal of EPF by an unemployed 75 percent of the corpus can be withdrawn after one month of unemployment and 25 percent remaining can be transferred to a new account with the next employment.
  2. Other than the provided cases, no amount can be withdrawn from EPF during the tenure of employment.
  3. As per the new rule, EPF holders can self-apply for withdrawal from the PF account online through the EPF website.
  4. No amount shall be permissible to withdraw before the age of 55.
  5. Unemployment due to retrenchment or lockdown shall also be considered a legit case for withdrawal of EPF.
  6. For withdrawals from EPF account with non-deposits or breaks in the contributions for the first 5 years, the entire amount shall be held taxable in the hands of the employee.
  7. If the entire amount of EPF withdrawal is below Rs 50000, then TDS provisions shall not be applicable and if PAN card details are provided any withdrawals above 50000 shall be liable for TDS deduction at the rate of 10%.
  8. As per the new rule, no approval from the employer shall be required from the employer for EPF withdrawal and it can be directly processed with the use of UAN and Aadhaar.

How to avoid TDS deduction using Income tax form 15G for PF withdrawal?

Receipt from EPF is considered as an income receivable in the hands of an employee if it was withdrawn before 5 years. Before making payment to the employee, TDS deduction is done as per the applicable rate by the EPFO and the rest amount is remitted to the employee. If the income is below the tax exemption limit then such a deduction can be claimed as a refund by the employee by filing an ITR to the department.

To avoid this deduction, the employee has the option to file an Income tax form 15G which facilitates PF members to pre-withdraw their PF online without any TDS Deduction.

For assistance required on compliance issues of TDS / EPF investments and tax forms submission, you can consult our filing experts there at info@taxreturnwala.com