Early PF Withdrawal Rules and Tax Impact: A Clear Guide
If you’re planning an early PF withdrawal before completing 5 years of continuous service, know the tax rules first. Many salaried employees assume their Provident Fund (PF) is tax-free at any point — but that’s not always true. Let’s break down what actually happens when you withdraw PF early.
When is PF withdrawal taxable?
As per Section 10(12) and Rule 8 of Part A, Fourth Schedule of the Income-tax Act, 1961, your PF withdrawal is tax-free only if:
- You have completed 5 continuous years of service (across one or more employers, if PF is transferred), OR
- The termination was due to ill-health, company closure, or reasons beyond your control.
Otherwise, the full withdrawal becomes taxable. Here’s how:
| PF Component | Taxability (if < 5 yrs service) |
|---|---|
| Employee contribution | Tax-free |
| Employer contribution | Fully taxable under “Salary” head |
| Interest on employee’s share | Taxable under “Income from Other Sources” |
| Interest on employer’s share | Taxable under “Income from Other Sources” |
TDS on PF withdrawal: What you must know
As per Rule 9 of Part A, Fourth Schedule, and clarified via CBDT Notification No. 76/2015, TDS @ 10% is applicable if the PF withdrawal exceeds ₹50,000 and:
- You don’t submit Form 15G/15H, OR
- Your total income is taxable.
No PAN? Then TDS @ 30% applies.
✅ Tip: Submit Form 15G if your income is below taxable limits. This avoids TDS deduction entirely.
How to submit Form 15G for PF withdrawal
Here’s a quick guide:
- Download Form 15G from EPFO portal
- Fill Part 1 and sign digitally (if filing online)
- Upload it while submitting your PF withdrawal request via UAN portal
Note: If your total income including PF is above the basic exemption limit, Form 15G won’t be valid — TDS will apply.
Exceptions: When early PF withdrawal is not taxed
PF withdrawal is exempt even before 5 years if:
- You quit due to illness, retrenchment, or business closure
- Your PF is transferred to another recognized account
- You switch to the NPS (Section 10(12B) relief)
In such cases, no tax or TDS is triggered.
Income Tax Return (ITR) Reporting Requirement
Even if TDS is not deducted, you must:
- Declare PF income in your ITR
- Show employer contribution and interest as salary income
- Mention Form 16 from EPFO (if available) for accuracy
Filing wrong ITR form (like ITR-1 instead of ITR-2/3) may lead to notice.
Expert Insight: Be proactive
“Employees often withdraw PF thinking it’s free money. But early withdrawal without checking tax exposure can backfire — especially if you jump tax slabs that year,”
says CA V. Balaji, Tax Consultant with 15+ years of PF and salary taxation experience.
Pro Tip: If possible, transfer your PF instead of withdrawing it early — especially if you’re switching jobs. It’s safer, tax-efficient, and keeps your retirement savings intact.
FAQs: Early PF Withdrawal
Q1. Is PF taxable if I resign and stay unemployed?
Yes, unless 5 years of service is completed. But no TDS if amount < ₹50,000.
Q2. Can I withdraw PF for home loan or marriage?
Yes, under certain conditions. These are partial withdrawals and usually not taxable, even within 5 years.
Q3. What if I switch jobs and transfer PF?
No tax is applicable. Transferred service counts towards the 5-year rule.
Q4. Is interest earned after leaving job still taxable?
Yes, if PF remains unclaimed and interest accrues — it’s taxed as ‘Income from Other Sources’.
Final Thoughts: Think before you withdraw PF
PF is not a regular savings account — it’s a retirement cushion with tax benefits. Premature withdrawals can cost you in taxes and future security. Always check if you’re eligible for exemption under Section 10(12) before initiating the process.
Need help with ITR filing or Form 15G?
👉 Let Efiletax simplify it for you. Our experts handle your PF withdrawal tax issues, ensure correct ITR filing, and avoid penalties.
Summary
Early PF withdrawal before 5 years is taxable. Know when TDS applies, how to use Form 15G, and avoid penalties. PF tax rules made simple.