My question concerns the EPF withdrawal. I joined my previous job on September 23, 2016 and the last working day was September 20, 2021. If I have been unemployed for 2 months and withdraw the entire EPF amount, will this be taxable? Also, do 4 years, 11 months and 28 days of service count as 5 years of continuous service? -Prateek Kumar
Response from Dr Suresh Surana, founder of RSM India.
The investment in the Employee Provident Fund (EPF) benefits from the status of Exempt-Exempt-Exempt (EEE), that is to say Exempt of Investment, Free of accrued interest and Exempt at Maturity . However, these exemptions are subject to conditions.
Five years of continuous service is a mandatory condition to benefit from the exemption on the withdrawal of the amount from the EPF account. The Act specifies certain exceptional circumstances in which even if the amount is withdrawn before five years of continuous service, it is eligible for the exemption. These exceptional scenarios are listed below:
If the service was terminated due to:
a. The poor health of the employee; Where
b. By contracting or stopping the employer’s activity; Where
vs. Other cause beyond the control of the employee
It is relevant to note that the law says that when calculating the 5-year period, one must also take into account the period served under the former employer (s). No such explanation is provided in either the Income Tax Regulation or the FP Regulation which states that a period of more than 6 months should be considered a full year. Therefore, it can be deduced that here the period of 5 years implicitly means 5 completed years and since the service as an employee has only been rendered by you for 4 years, 11 months and 28 days, it is ie after 4 years, the amount withdrawn from the EPF account may be subject to tax except in the case where it falls within the 2 aforementioned cases.
However, in the event of continuous unemployment for a period of up to one month, Article 68HH of the Employees’ Provident Scheme, 1952, provides for the withdrawal of 75% of the amount still due in the PF fund. The 25% balance can be withdrawn after two months of unemployment.
In addition, to request the tax exemption, you can benefit from the advantage provided by the government, via the GSR 225 (E) notification of 27.03.2020, allowing the withdrawal of the first non-refundable advance by the members of the EPF in the current pandemic situation under sub-paragraph 3 of paragraph 68L of the EPF scheme, 1952. Consequently, you will be entitled to a non-refundable advance of less than 3 months of the base salary and cost allowances or up to 75 % of the credit amount. The government has, in accordance with the announcement of May 31, 2021, also authorized its members to benefit from a second COVID-19 advance on the same criteria.
(Have questions about personal finance? Email [email protected])
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