EPF Withdrawal: When Is It Tax-Free and When Is It Taxed?

The Employees’ Provident Fund (EPF) is a popular retirement savings scheme that offers tax benefits. However, not all withdrawals from the EPF account are tax-free. The tax treatment depends on how long the EPF account has been held and the reason for withdrawal.

EPF Tax Benefits

EPF falls under the Exempt-Exempt-Exempt (EEE) category. This means the contribution, interest earned, and the maturity amount are all tax-free, provided the investment is held for at least five years.

Under the old tax regime, deposits of up to ₹1.5 lakh in a financial year qualify for deduction under Section 80C of the Income Tax Act.

 In the new tax regime, only the employer’s contribution (up to 12% of basic pay and dearness allowance) qualifies for a tax benefit.

The interest and maturity amount are tax-free under both regimes if the EPF has been held for more than five years.

Eligibility for EPF Withdrawal

An EPF member can withdraw the full balance in the following cases:

A member can also withdraw the full balance after being unemployed for two months, provided they have not taken up another job covered under the EPF Act.

Taxation on Withdrawal Before 5 Years

If the EPF balance is withdrawn before completing 5 years of continuous service, the amount becomes taxable.

 The Employees’ Provident Fund Organisation (EPFO) deducts TDS at 10% if a valid PAN is provided. If not, TDS at 34.608% is deducted.

No TDS is deducted if the withdrawal is due to reasons beyond the employee’s control, such as ill health, business closure, or project completion.

Counting 5 Years of Service

The total service period includes time spent with previous employers if the PF balance is transferred to the new employer’s account. Breaks in service due to sickness, accident, or authorised leave are also counted as continuous service.

Read more: Tata Motors Passenger Vehicles (TMPV) Date Announced: November 14, 2025.

Conclusion

EPF offers strong tax advantages when held for at least five years. Withdrawing it early can lead to tax deductions and reduced benefits. To avoid TDS, it is best to transfer the existing PF balance to your new employer’s PF account and withdraw only after completing five years of continuous service.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.