Withdrawal from EPF is Taxable?
It is taxable if the employee leaves the job before completing 5 years. If he has completed 5 years and withdraw from the fund, then it is not taxable. It is also not taxable if the fund was transferred from the previous employer and total service from ex-employer and current employer is 5 years or more than 5 years.
Tax officials have cited a rule in the 1961 Income-Tax Act that taxes PF withdrawals by employees before completing five years of contributions into the EPF is taxable.
In short, where the PF amount is withdrawn before five years of continuous service, it may be taxable in the hands of the individual as if the fund was not recognized from the start of the contributions. In such a case, payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).