BUDGET 2023: TDS RATE ON EPF WITHDRAWALS FOR NON-PAN HOLDERS
What is EPF?
The Employee Provident Fund (EPF) is a retirement savings scheme for employees in India. It is a mandatory contribution made by both the employee and the employer, and the funds collected under the EPF scheme are managed by the Employees’ Provident Fund Organization (EPFO). The EPF is designed to help employees save a portion of their income for their retirement years and provides financial security in old age.
Under the EPF scheme, an employee contributes 12% of their basic salary and dearness allowance to the EPF account, while the employer contributes an equal amount. The employee can also choose to contribute an additional amount, known as Voluntary Provident Fund (VPF), to their EPF account. The EPF account earns interest, which is calculated on a yearly basis, and the interest rate is determined by the EPFO.
Employees are eligible to withdraw their EPF balance after they have completed five years of continuous service or in case of unemployment. In addition, partial withdrawals are allowed in certain circumstances such as marriage, education of children, or medical emergencies.
Overall, the EPF is an important savings tool for employees in India and provides them with a secure source of income during their retirement years.
Importance of Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a crucial component of an employee’s financial planning, as it provides several benefits:
- Long-term savings: EPF helps employees save a portion of their income for their retirement years, providing a secure source of income in old age.
- Tax benefits: Contributions made to the EPF account are eligible for tax deductions under Section 80C of the Income Tax Act. This reduces the taxable income, providing tax savings for the employee.
- Interest income: The EPF account earns interest, which is calculated on a yearly basis. The interest rate is determined by the Employees’ Provident Fund Organization (EPFO) and is usually higher than other fixed-income investments such as savings accounts and fixed deposits.
- Life Insurance: The EPF also provides life insurance coverage to employees, with the sum insured being equal to the EPF balance.
- Nomination facility: Employees can nominate a person or persons to receive the EPF balance in the event of their death. This provides a sense of security to the employee and their family.
- Withdrawal: EPF provides a flexible withdrawal option, which enables employees to withdraw their EPF balance in case of unemployment, retirement, or specific emergencies such as medical treatment or marriage.
Overall, the EPF is a critical component of an employee’s financial planning and helps employees accumulate long-term savings, enjoy tax benefits, and secure their financial future.
Withdrawal of EPF:
An individual can withdraw the EPF balance under certain circumstances such as:
- Retirement: An individual can withdraw the entire EPF balance after they have reached the age of 58 years and have completed five years of continuous service.
- Unemployment: If an individual has been unemployed for a continuous period of two months, they can withdraw the entire EPF balance.
- Partial Withdrawal: Partial withdrawal is allowed for specific purposes such as medical emergencies, marriage, education, purchase of a house, etc.
- Termination of Employment: In case of termination of employment, an individual can withdraw the EPF balance after two months from the date of termination.
To initiate the withdrawal process, an individual must submit a claim form (Form 19) along with the required documents to the EPFO office. The claim process usually takes around 20 to 30 days to complete, and the EPF balance will be credited to the individual’s bank account.
It is important to note that EPF withdrawal is taxable under certain circumstances, such as if the employee has not completed five years of continuous service, and the tax rules can vary depending on the specific withdrawal scenario. Therefore, it is advisable to seek the guidance of a financial expert before making a decision on EPF withdrawal.
Process of Withdrawal of Employee Provident Fund(EPF):