Under Section 10(12) of the Income Tax Act, employees who complete at least five years of continuous service are exempt from paying tax on provident fund withdrawals. According to reports from Zee News, the entire accumulated corpus, including employee contributions, employer contributions, and interest earned, can be withdrawn tax-free by the employee. For employees who switch jobs and transfer their PF balance to a new employer, previous years of service can be counted towards the five-year requirement, eliminating TDS deduction at withdrawal time. However, EPFO 3.0 has now reduced this eligibility period to 12 months for partial withdrawals, which could make withdrawals taxable under the new framework.
As reported by Zee News, EPFO allows members to withdraw their entire PF balance after remaining unemployed for two months. However, the five-year continuous service rule remains the deciding factor for taxability in these cases. This provision provides financial relief for employees who lose their jobs but have accumulated sufficient PF balance over their previous employment periods. Under the revised EPFO 3.0 framework, members can now withdraw up to 75% of their PF balance for essential needs, housing needs, and special circumstances, with at least 25% of the corpus retained to protect long-term retirement savings.
According to the tax provisions outlined by Zee News, if an employee withdraws an amount more than or equal to ₹30,000 with service less than 5 years, TDS will be deducted at the rate of 10 percent if Form-15G/15H is not submitted, provided PAN is submitted. The TDS rate increases to the maximum marginal rate of 34.608 percent if the employee fails to submit PAN. EPFO 3.0 introduces auto-settlement for claims up to ₹5 lakh, processing over 3.5 crore claims during FY 2025-26 as of February 25, 2026. However, withdrawals exceeding ₹5 lakh will continue to undergo full verification, including employer approvals and manual intervention, which may still result in taxable withdrawals.
As reported by Zee News, no TDS will be deducted in several specific scenarios including PF withdrawal after five years of service, PF payments less than ₹30,000 with service less than 5 years, and withdrawals above ₹30,000 with service less than 5 years but Form 15G/15H submission along with PAN for withdrawals above ₹30,000. Other exemptions include transfer of PF from one account to another, termination of service due to member's ill health, discontinuation of business by employer, completion of project, and other causes beyond the member's control. However, premature withdrawals may still qualify for tax exemption in certain circumstances, including medical emergency or job termination, though the new 12-month eligibility period under EPFO 3.0 may impact these exemptions.
