How to calculate tax on EPF withdrawal

A9S6 66
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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).

tax-calculation epf-withdrawal income-tax
1 Answers

Income tax is payable if EPF balance is withdrawn before five years of continued service (can be with more than one employer but account has to be transferred in that case).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

Pankaj Batra5212

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?

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).

Pankaj Batra•

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.

Pankaj Batra•
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