How to calculate tax on EPF withdrawal

How can one calculate the tax on EPF withdrawal (less than 5 years of continuous service)? I think the calculation involves:

Taking the total sum of YOUR contribution that went into 80C investment for all the years (Y1 + Y2 +...) and including that in your income. Also the interest part should be included in the income. Two transactions are carried out by the EPF organization when the amount is transferred to your bank account. I believe one is the total amount accumulated over the years and the other is the interest part (which needs to be included in your income while calculating tax).

asked Jul 18 '11 at 09:50 by A9S6 66449

This question is marked "community wiki".

Income tax is payable if EPF balance is withdrawn before five years of continued service (can be with more than one employer but account has to be transferred in that case).

Following components have to be added to person's taxable income to compute tax liability:

  1. Interest paid by EPF department on employee contribution.
  2. Interest paid by EPF department on employer contribution.
  3. Amount deposited as employer contribution.

On EPF withdrawals, two transactions carried out are not for Principal and interest, but are for provident fund and pension fund balance.

Pension fund contribution is 8.33% of basic salary. Maximum is 8.33% of 6500, which comes out as Rs 541.

answered Jul 18 '11 at 20:34 by pankaj 5.2k320

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Thanks for clarifying about the transactions. Where can a person get information on #1 and #2. I guess #3 can be seen in Form 16. Also, if my PF withdrawal form went through my last company, does that mean they have already provided the info to EPF dept and TDS was deducted?
(Jul 20 '11 at 23:19) A9S6
If you know your monthly contribution in PF (both employer and empployee portion), you can compute interest. EPF interest computation is a bit complex one. Please read below for the computation logic. Monthly interest is computed by formula: (Sum of all contributions till previous month end + sum of all interests earned till last February end) x (annual rate of interest/(12×100)) This is computed on employer and employee contribution separately. Pension fund is deducted from employer contribution every month (Around Rs 541 pm).
(Jul 21 '11 at 12:00) pankaj
Not sure whether TDS was deducted or not, as EPF department does not generally deduct TDS and pass the onus on the account holder. As they don't want to take pain of tax calculation, TDS deposit and issuing form-16. They have been scolded many times by IT department for not deducting TDS.
(Jul 21 '11 at 12:02) pankaj
Dear Pankaj It is getting little complicated but very important thing to understand. I have a following figures from my PF statement. (PF was closed in less than 5 years) Considering the above answer and below figures: 1.Interest paid by EPF department on employee contribution. (10,292) 2.Interest paid by EPF department on employer contribution. (6683) 3.Amount deposited as employer contribution (76738) My queries are: 1. Should I add the sum 93713 (sum of abouve three figures) in my taxable income? 2. I could not understand this point "On EPF withdrawals, two transactions carried out are not for Principal and interest, but are for provident fund and pension fund balance" from previoud post. Please suggest. Thanks. Sample Figures: Gross amount: 2,11,894 Tax deducted: 26289 Net amount = 1,85,605 Employee contribution: 1,18,181 Interest: 10,292 ============================ X = 128473 (118181 + 10292) Company Contribution: 76,738 Interest: 6,683 ============================ Y = 83421 (76738 + 6683) Total Z = X + Y = 128473 + 83421 = 2,11,894
(Jul 21 '11 at 14:09) Amit91
Yes, some of these three figures will be taxable and will be added to your taxable income. That point is valid for people having account with Govt PF department. When you withdraw, they issue two separate refunds, one for pension fund and other for provident fund balance. Are these sample figures provided by your PF department or you have computed it yourself. On what percentage this tax has been deducted? How long you worked with company? Why there is a huge diff b/w employee and employer contri. Employer contri + pension fund contri (max 541 pm) should be equal to employee part.
(Jul 21 '11 at 14:33) pankaj
These are the figures from the PF statement. But I too have same questions as you mentioned. I had worked for the organization for 4 years and two months. I think I should raise these questions to PF department and employer to give me further details on this.
(Jul 21 '11 at 15:09) Amit91
Hi Pankaj Can you please clarify more on this. Is it the only interest component which has to be shown as additional income or the whole amount recieved from IT is taxable ? If i understood correctly, then you mean to say that the following is taxable in simpler terms Total Amount Recieved - Pension Amount - Employee Contribution = Left Amount is taxable ? Also kindly please quote the relevant IT sections so that we can read that clause. Any help would be highly appreciated. Regards
(Aug 02 '11 at 23:24) Rahul Kumar
This is as per Rule 8 of Part A of the Fourth Schedule of IT Act. Interest on employer contribution and employer contribution will be chargeable under head salaries. Interest on employee contribution will be chargeable under Head income from other sources.
(Aug 03 '11 at 20:16) pankaj
Thanks Pankaj for citing the relevant rule Can you please confirm the calculations for the tax "Total Amount Recieved - Pension Amount - Employee Contribution = Left Amount is taxable ?"
(Aug 03 '11 at 23:29) Rahul Kumar
Yes, it taxable amount will be = Total amount received - Employee contribution - Pension amount
(Aug 04 '11 at 16:26) pankaj
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Asked: Jul 18 '11 at 09:50

Seen: 19,235 times

Last updated: Aug 08 '11 at 12:55