India's EPF Rules: PF Withdrawals Taxed Before Five Years of Service

Employees’ Provident Fund (EPF) withdrawals made before an employee completes five years of continuous service are subject to income‑tax and tax‑deduction at source (TDS). Under Section 10(12) of the Income Tax Act, only withdrawals after five years are fully tax‑exempt; the service period counts across employers if the PF balance is transferred.

If the service is under five years, the withdrawn amount is treated as taxable income. No TDS is deducted when the service is five years or more, or when the withdrawal amount is under ₹50,000. For withdrawals of ₹50,000 or more, a 10 % TDS is applied if the employee’s PAN is on record, with a higher rate if PAN is missing. Employees can avoid TDS by submitting Form 15G/15H where eligible.

Withdrawals are still taxable even when an employee is unemployed for two consecutive months—the EPF permits full withdrawal after such a period, but the five‑year rule still decides tax liability. Certain exceptions—ill health, closure of the employer, completion of a project, or other reasons beyond the employee’s control—allow early withdrawals to remain exempt. Partial withdrawals for housing, marriage, education or medical needs follow separate EPF guidelines and are not taxed like full settlements.