Employees Provident Fund (EPF) is an important mechanism of legal social security to the workers of India which is managed by the Employees Provident Fund Organisation (EPFO) under the Ministry of Labour & Employment. The main objective of the EPF scheme is to prepare resources to meet the financial requirements after retirement for employees who are working in the organized sector. As EPF assists people in building their retirement wealth, there are certain conditions related to withdrawals; especially the tax part. This article will discuss the current and new EPF rules of withdrawal in the year 2024, tax exemption conditions for EPF withdrawal, and how you can escape 30% tax on EPF withdrawal amounts which is greater than or equal to Rs 50,000.
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What is the meaning of the EPF Scheme?
The EPF scheme entails that employees and employers contribute 12% of the basic wages/salary paid to the employee. However, the employer’s contribution is split into two parts: Because it has some relationship with care breakdown in hospitals, the following points may also be true for it: 8. The Pension scheme takes 33%, and the balance of 3 percent is used for other expenses such as; Sixty seven percent goes to the EPF corpus.
This scheme is called Retirement Fund and Pension which will be made available to the employees after either compulsory or early retirement. The main aim of providing pension schemes is to cater to the future financial needs of the employees after retirement but the same is also allowed to withdraw partially or fully before retirement under some circumstances.
EPF Withdrawal Rules 2024 – How Soon Can One Take Money?
Normally, the employee cannot withdraw the provident fund before retirement but he can do so where he has a break in service. However, EPFO allows partial withdrawals under specific situations, such as: However, EPFO allows partial withdrawals under specific situations, such as:
Medical emergencies
- Higher education expenses
- Purchase of a site, or construction of a residential house
- An employee is allowed to withdraw 75% of the EPF logically he or she must be jobless and the period it takes to make this withdrawal without a job is one month. In the case of unemployment if it is for two months the remaining 25% can be withdrawn making it 100% withdrawal. However, if the employee finds new employment within the second month he or she can transfer the remaining 25% of the balance to the new employer’s PF account.
Tax on EPF Withdrawals: The thirty percent tax has been the cause of many problems as to how to avoid it because it is a major burden to politics.
To be able to withdraw money from his/her EPF account without him/her paying tax the employee has to have contributed for at least five years continuously.
However, if you withdraw funds before 5 years, you are subject to tax deductions at source (TDS): However, if you withdraw funds before 5 years, you are subject to tax deductions at source (TDS):
- For taking any withdrawal from the account, If you draw more than Rs. 50,000 you have to pay 10% TDS if you possess the PAN card.
- As per existing rules if you do not have a PAN card then you have to pay 30% TDS.
- As for the TDS issue, it is worth mentioning that, similarly to the TDS applied to withdrawals under Rs 50,000, no TDS can be claimed for withdrawals below Rs 50,000 and regardless of the contribution period. Hence, they need to make sure that they have been contributing for five years, including PAN card details to reduce or even eliminate taxes on withdrawal.
Certain scenarios that are permitted for tax-free withdrawals have been listed below
- Retirement: Get your money, tax-free, if you have contributed for at least five years.
- Unemployment: One can take partial withdrawal after one month of unemployment while full withdrawal is possible after two months.
- Medical or Other Emergency: Holding Tax-Free Savings Accounts, you can make withdrawals for medical treatment or education if you’ve made 5 years’ contribution.
Conclusion: How to make your EPF withdrawals tax-free
Hence to avoid paying huge tax on your EPF withdrawals especially the 30% tax which affects those having no PAN card, it is advisable to save for five consecutive years in your EPF account. To reduce your tax liability while updating the EPF account, make sure that your PAN card is inserted into your EPF account.
Through the new provisions of the EPFO withdrawal in 2024, the employees are in a position to utilize all their savings and avoid plans that result in paying unwanted taxes and thus they will get the best of their retirement.
