Learn PF Withdrawal Tax 2025 rules : When PF is taxable, TDS rates, 5-year rule, exemptions, Form 15G/15H, deductions and simple examples. Employees often withdraw their Provident Fund (PF) when changing jobs or during emergencies. However, most people are confused about whether PF withdrawal is taxable or tax-free. PF taxation mainly depends on the 5-year rule.
Table of Contents
1. What is PF Withdrawal Tax?
PF withdrawal becomes taxable if an employee withdraws PF before completing 5 years of continuous service.
If service is 5 years or more, PF withdrawal is completely tax-free.
2. When PF Withdrawal is Tax-Free
PF withdrawal is exempt from tax when:
A. The employee completes 5 years of continuous service
Service in multiple companies is counted as long as PF is transferred.
B. Withdrawal due to specific conditions:
- Company shutdown
- Medical emergency
- Permanent disability
- Death (nominee receives full amount tax-free)
C. PF is transferred instead of withdrawn
Transfers are not treated as withdrawals.
3. When PF Withdrawal Becomes Taxable
PF becomes taxable if:
- Withdrawal happens before completing 5 years of service
- PF is withdrawn instead of transferred to the new employer
- PF account becomes inactive and withdrawn later
In such cases:
- Employee contribution is not taxed
- Employer contribution and interest are taxable
- Interest on employee contribution is taxable
- Any 80C deduction claimed earlier must be reversed
4. TDS on PF Withdrawal
TDS Rate:
- 10% TDS if PF withdrawal exceeds Rs. 50,000
- No TDS if withdrawal is Rs. 50,000 or below
TDS is not deducted if:
- Form 15G or 15H is submitted
- Total income is below the taxable limit
- Service period exceeds 5 years
- PF is transferred to a new employer
5. How PF is Taxed
Taxability Summary:
| PF Component | Taxable? | Category |
|---|---|---|
| Employee Contribution | No | Not taxable |
| Interest on Employee Contribution | Yes | Income from Other Sources |
| Employer Contribution | Yes | Salary Income |
| Interest on Employer Contribution | Yes | Salary Income |
| 80C Deduction Claimed | Reversed | Added to taxable income |
6. Exceptions: PF Not Taxed Even Before 5 Years
PF remains tax-free even before 5 years if the withdrawal is due to:
- Company closure
- Employee’s ill health
- Employee becomes permanently disabled
- Death of the employee
- PF transfer to new employer
7. Tax Treatment of Each Component
Employee Contribution
Not taxable unless 80C reversal applies.
Employer Contribution
Taxed under salary income if withdrawn before 5 years.
Interest on Employee Contribution
Taxed under Income from Other Sources.
Interest on Employer Contribution
Taxed under salary income.
8. PF Withdrawal Tax 2025 Examples
Example 1: Withdrawal Before 5 Years
- Total PF Balance: Rs. 2,40,000
- Employee Contribution: Rs. 1,20,000
- Employer Contribution: Rs. 1,00,000
- Interest: Rs. 20,000
Tax Calculation:
- Employee contribution: Not taxable
- Employer contribution: Taxable
- Interest: Taxable
- 80C deduction reversal: Added back
Total taxable income =
1,00,000 + 20,000 + 1,20,000 = Rs. 2,40,000
Example 2: Withdrawal After 5 Years
- PF Balance: Rs. 5,00,000
Tax: 0
TDS: 0
PF is fully exempt.
9. Common Mistakes
- Withdrawing PF during job change instead of transferring
- Not submitting Form 15G/15H when eligible
- Assuming PF from each employer is counted separately
- Keeping PF inactive for long and then withdrawing
10. FAQs
Q1. Is PF withdrawal taxable after 5 years?
No. It is fully exempt.
Q2. Can I avoid TDS on PF withdrawal?
Yes, by submitting Form 15G or 15H if eligible.
Q3. Is PF taxable if I change jobs?
No, if PF is transferred to the new employer.
Q4. Is partial PF withdrawal taxable?
No. Partial withdrawals are exempt.
Q5. Is PF taxable if I am unemployed?
If withdrawn before 5 years, yes.
After 5 years, no.
11. Conclusion
PF withdrawal tax mainly depends on the 5-year rule.
Withdrawing before 5 years leads to tax on employer contribution, interest, and reversal of 80C claimed earlier.
Withdrawing after 5 years is completely tax-free.
For help with PF taxation, Form 15G/15H, or tax filing, visit TaxGiveIndia.com.