Economy

# Clearing the Confusion on How EPF is Taxed at Exit in Budget2016

There’s a lot of confusion about the whole EPF taxation thing. Let us explain.

• Employees put money every month into their EPF (12% of salary) and the company puts another 12%.
• This money saves tax under section 80C so it’s exempt at entry
• Then it accrues interest each year, but you pay no tax on that interest. (exempt on accrual)
• Then when you turn 58, you get all the money, tax free.  (exempt at exit)
• This was the EEE regime.
• This is sadly coming to an end.
• Now due to Budget2016, when you exit, the amount of money you get when you exit will be taxed. But not all of it!

First, let’s understand this:

The amount of money you have put in till now, and the interest it will get till you retire – that amount is still exempt at tax when you exit. That doesn’t change.

From 1 April 2016, whatever money you put in, that money (plus it’s interest) is taxed when you exit.

### How Much?

The tax is:

• 40% of that corpus is tax free.

This is complex because you have to figure out, when you exit, how much of that money was for what you paid before 1 April 2016, and how much was after, and then apportion the amounts. This requires serious math skills especially if the amount of interest every year is different!

Then, you have the big issue: Tax applies not on the gain, but on the whole amount. Take an example. Assume I put in Rs. 10,000 a month, starting 1 April 2016, for 10 years. That’s Rs. 12 lakh.

Let’s say my exit corpus is something like 20 lakh.  (Note: This is a yield of 9.5%, way higher than current interest rates of about 8.8%)

You’re thinking: I put Rs. 12 lakh, it’s now Rs. 20 lakh, so I made Rs. 8 lakh, no? Even if I get taxed, I should get taxed on the Rs. 8 lakh? (Or, if you give me inflation adjustment, it might even fall to Rs. 6 lakh?)

The EPF tax applies on the FULL amount. So of the 20 lakh, only Rs. 8 lakh (40%) is tax free. The remaining 12 lakh rupees get added to your income and taxed! If you’re in the 30% tax bracket, you will pay Rs. 4 lakh as taxes, taking your post tax return to Rs. 16 lakh – which won’t even beat inflation. Plus, note that they just taxed your half of your real gains!

You can complain but that’s how it is.

Some will tell you – look, you saved taxes when getting in, no? But EPF contribution is only one part of the 80C limit – which you can get if you have paid kids school fees too, or had a housing loan principal paid back, or invested in equity taxsaver funds, or bought insurance policies, or bank 5 year tax-saving deposits. Any of these gives you the same exemption, and if you have put in the EPF amount too, you’re hosed. Plus, if your EPF contribution exceeds 150,000 a year you never got the tax benefit getting in.

### Don’t Invest For Taxes

If you invested in EPF for tax reasons, you will find it was futile. The end-tax now is very high, and the only thing which saves you is that your contributions till now are tax free on exit. But anything going forward is not worthwhile!

Sadly, EPF is compulsory. But there’s an option.

Companies have the ability to say they will cap EPF inputs at Rs. 800 or so per person. (2% of salary or Rs. 800 per month, whichever was lesser)

Note: I have been told this has been changed – the min salary was 6500, which is upped to Rs. 15,000, in 2014. So you can cap it to 12% of 15,000 which is Rs. 1800 per month.

Then no matter how much your salary is, you only pay Rs. 1800 per month. We took that option in a company I was in earlier. This option is now better since the exit option ensures your real tax is very high when you do exit – so no point paying 12% of your real salary when you can pay a max of Rs. 1800. However, not every company gives you this option. (And apparently, you have to choose that you cap at 15K or you pay for full basic as a uniform policy across all employees. I’m not even sure if you can change this policy after you’ve started one way)

But it’s clear now: Don’t invest because of the tax saving based on existing tax regimes. The government can change on you and can change fast. Your money will be at stake. This time they grandfathered the proposal (as in, allowed current corpus to be tax free) but they may not do it every time.

### The Last Word on the EPF Thing

EPF is simply EET (Taxed at Exixt) now, and companies should be allowed to shift to the NPS for superannuation. The taxes make it less worthwhile (like I have shown earlier). However that applies only on exits at one shot – currently that’s the option. But things are going to be clarified – you may be able to buy an annuity and defer the tax.

Also note, you do not pay tax at exit on your corpus as of 31 March 2016. Current payments have been completely grandfathered at exit. So don’t rush to withdraw or remove money; you don’t have to. (Anyhow, you can only withdraw what you pay in, with a notification in Feb. Your employer’s contributions are not withdrawable till age 58)

PPF is okay. It’s still exempt, in full, on maturity.

NPS is now on par with the EPF, but probably wins because its yields have been higher.

In all cases, the tax on EPF on exit, and the lack of full availability of that tax on input (since 80C limits are taken by other things also) means you get a horrible retirement package which won’t beat inflation. There’s not much you can do though – as an employee, you can’t exit easily. You don’t have to exit now, because anyhow nothing that you put in till March 31, 2016 will be taxed even on exit. But after that, you need to understand that your retirement return immediately becomes substandard.

Update: Minister of State for Finance Jayant Sinha has confirmed on twitter that they will issue certain clarifications. Apparently, this rule may also apply to PPF (current rules don’t include PPF) and that if you transfer the 60% money to an annuity you will not be taxed on that 60%. And then, supposedly annuity returns (monthly payments) may not be taxed. This is all in the air, because I cannot find any of it in the finance bill and will need an addendum.

Overall, this move is a move to the EET regime. This would be fine – fully exempt on entry and accrual, and fully taxed on exit. That’s a good thing to have in general but remember that in EPF, there are multiple issues:

• EPF entry is not all non-taxable – entry of Rs. 3 lakh (1.5 lakh of yours, 1.5lakh of employers) is non taxable, anything more is not. Even your contribution is within 80C, where you may have exhausted limits due to investments in other securities/expenses – children’s education, housing loan principal etc. (But then exit is also not taxed 100%, only 40%)
• EPF is not optional – for all companies > 20 employees, it’s compulsory. And most don’t make it easy for an employee to only take the Rs. 1800 per month option – they actually pay 24% of their salary. (People negotiate the FULL salary – which includes the employers contribution, as a Cost-To-Company – the company will happily pay you the excess if your EPF payment is lower, say because you already have other 80C exemptions, if you’re okay getting taxed)
• EPF is the only instrument going EET. Other such things – Insurance payouts and ELSS are still EEE. That makes no sense.

So if what Mr. Sinha says is right, then we must also make EPF optional (versus say an NPS or say self invested lower retirement savin
gs) and will see it go 100% tax free at entry too. (Then they can tax 100% at exit, which can be an annuity or something else) Also other long term saving might also go into the “taxed at exit” mode. This will happen in later years. You have to be careful about how the regime is changing – what they say is “not taxable” now, can become taxable later. Don’t bet on taxes for your retirement kitty.

### Update: PPF Is Not Taxable, Whole Corpus Is

The Finance Ministry has released a note confirming EXACTLY what we have said here, despite statements to the contrary made on various TV channels. Here’s the note

Essentially:

• PPF is unaffected. No change, No tax on exit.
• EPF Is taxable at exit. If you earned less than 15,000 rupees a month when you retire, you don’t pay this exit tax.
• The idea is to discourage taking full PF when you retire, as a lumpsum. Take 40%, no tax. The remaining 60% if you do take, you are taxed on it (at retirement)
• Note: it’s 60% of the whole corpus, not interest.
• If you use this 60% to buy an annuity from an insurer, then there is no tax. Now this needs a clarification that it’s not really taxed – because technically the money comes to you and you buy an annuity, so it’s income in your name. I think the concept may be hidden in the tax code, but I haven’t been able to find it.
• The annuity pays you a monthly amount. This monthly amount is taxable. (Please don’t believe what someone has “said”. Income from annuities is taxable, nothing has changed there)
• If you die and the remaining annuity goes to your heirs, they don’t pay tax. (basically, we can’t enjoy our money, our heirs can)
• People have asked that only the accumulated interest be taxed, not principal. And that the input limits should be removed (currently 1.5L on both employer and employee contributions). They will think about it, so these changes have not yet happened.
• Vijay says:

Hi Deepak,
Do we need still need to pay tax if the 60% amount is used to buy an annuity ? Assuming FM wants to bring things on par with NPS.
Regards
Vijay

• Good Q. There’s no such clause I think…but lemme check

• Harsha says:

Apparently, Jayant Sinha clarified that if you move 60% to annuity, it isn’t taxed.

• Ah! I know that’s the case with NPS. But not with EPF no?

• Harsha says:

Jayant Sinha clarified yesterday that their aim is to equalize all pension products. Thus PPF/EPF/NPS will all have same taxation. Many thought PPF wasn’t going to be taxed, but according to Jayant Sinha – PPF also will be taxed.
40% withdrawal tax free, and 60% taxed if you withdraw, but if you put in annuity it’ll be tax free and he said something to the effect that annuity will also be tax-free. Perhaps there will be circular clearing this.
Not that it matters to me. I don’t believe in EPF/PPF/LIC/Pension funds. 🙂

• Vineet says:

Even I don’t believe in Pension funds but issue is that EPF is not voluntary for many people. EPF should be voluntary in that case, maybe they haven’t done it because they know that contributions will drop like a rock after this announcement.

• Raj says:

Harsha,
You dont depend on EPF/PPF/Pension funds for retirement. What are you depending on then?
Stocks/RealEstate?

• Sandeep Shanbhag says:

Yes Jayant Sinha clarified that 60% won’t be taxed if used to purchase an annuity. However what he didn’t touch upon (perhaps bcos he wasn’t asked) was that the annuity itself would be taxable – in line with the tax treatment of other annuities that are purchased from superannuation proceeds or other pension plans. In other words, the 60% would always be taxable, either as a lump sum or in instalments.

• skb says:

This is a real blow in the budget. Was actually expecting the LTCG changes for equities to be extended to 3 years but not this as this is going to impact a much more wider section of employees from private to public. Sure it is one hell of an unpopular one to have been taken.
Also the new EPF withdrawal rules are quite hazy – it is not clear if one has quit job and does not withdraw from the EPF and if it will accrue interest until age 58 without any contributions in between?
Lots of expectations from the BJP govt. all watered down with no groundbreaking decisions coming in, just small tweaks here and there – idiots.

• Jagdish says:

Hi Deepak, thanks for timely explanation on this sensitive topic. Apart from those negatives, we are reading about other shocker that one cant withdraw full until reaches 58.

I dont think that is a budget proposal but its a new EPF rule. You cannot withdraw employer’s contribution till age of 58.
You can withdraw your own contribution any time.
And now I think anything withdrawn before 60 years of age means full amount will become taxable.

• Jagdish says:

Feel govt is screwing salaried class, known as soft target with all means

• IS says:

Don’t you think its a good idea to withdraw the EPF/VPF now if someone has more than 5 years of service ?
I am assuming that your advise now would be to stop further VPF contribution.

• It’s not great but you can’t really opt out anymore 🙁 And since the current corpus remains tax free, you don’t need to pull out funds. Cna stay in but not contribute anymore, if you change employment parameters and become a contractor or such.

• Harsha says:

Please recheck your assertion that PF amount can be limited to Rs.800. I think you are talking about the 12% contribution on old threshold of Rs.6,500/-. In 2014, they raised the threshold to Rs.15,000/- So, the amount is more like 1,800 now.

• Sandewp says:

Are you sure that PPF is not impacted by this change?

• Yes I think so – there is no mention of PPF in the clause. A registered Provident fund is different from the public provident fund.

• John says:

Some articles point out that even PPF is taxable on withdrawal. Is that the case or is it only for EPF?

• NO, I don’t think PPF is taxable. None of the rules mention PPF

• It says “In case of superannuation funds and recognized provident funds, including EPF” here: http://indiabudget.nic.in/ub2016-17/bh/bh1.pdf on page 11. I think it implies that PPF is included as well.

• SO technically, PPF is not a “recognized provident fund” or a “superannuation fund”. According to the tax code it’s a different thing from the two. Thats my basis for saying it’s not included.

• Ashwath says:

Also there is a different Act that covers this called the PPF Act which will need to be amended.
I did not see this included in the budget proposal.

Will EPF now allow partial withdrawal like how NPS did.
This will allow to defer income over the years instead of paying 30% tax in the year of withdrawal.

• Ishwar PB says:

I want to clarify this scenario
Say on 31st mar 2016 my EPF kitty is 5 lakhs (contribution plus accrued interest).
Say I have another 10 years of service where the I contribute and accumlate total y amount (contribution and interest from 1 april 2016 onwards including interest on 5 lakhs)
also for calculation sake lets fix the interest of PPF at 8.5
The 5 lakhs becomes 1130492 [compounded anually for 10 years]
Does it mean from the end kitty 1130492 is tax free
on the balance (y-1130492)
0.4 x (y-1130492) is exmpt from tax i.e I will get 11390492 + 0.4 (y – 1130492) as tax free money
and 0.186 x (y-11390492) is the Tax I will pay if I am at 30% bracket
pls clarify

• That’s how it works! Well done.
Unless they change the tax rules in the next 10 years when it will get even more complicated. (they may change 40% to 20% or somethng else)

• Shuvra says:

Hi Deepak,
One Question: What about the 88% remaining basic that you can deduct as a part of VPF. Are they taxable?
Thanks,
Shuvra

• Ashok says:

I think the clarified today that only the interest amount accrued from 1st April 2016 will be taxable. Not the principal amount.
So in your calculation, if y = yp (principal amount invested every month) + yi (interest on yp)
0.4 * (y – yp – 1130492) is exempt from tax.
0.186 * (y – yp – 11390492) is the tax you pay.

• Vasanth says:

Hi Ishwar,
Just wanted to understand. Where it is mentioned that the the future interest on the existing balanace will not be taxed? I thought it is only the balance as it stands on March 31st 2016, that won’t be taxed. I am hoping I am wrong on this.
Thanks
Vasanth

• Vikash says:

I think for EPF the company contributes the same amount that we do so we might also lose company’s contribution if we opt for any other product

• Sandeep Shanbhag says:

Hello Deepak, really liked the Budget posts from you and your team. Very well done. Very insightful. Btw, about the PF thing, there is a recent notification (GSR 158E dated 10th Feb, 2016) that specifies that an employee can only withdraw his contribution and the interest thereon upon ceasing to be an employee – the actual wordings are something like this
“(1) The Central Board, or where so authorised by the Central Board, the Commissioner, or any officer subordinate to him, may, on an application made by a member in such form as may be specified, authorise payment to him from his provident fund account not exceeding his own total contribution including interest thereon up to the date the payment has been authorised on ceasing to be an employee in any establishment to which the Act applies.”
I am told employers are taking this to mean that this clause will get attracted to any cessation of employment other than retirement – however – it so happens that retirement is also a kind of cessation!! Anyway, not only will you get taxed, you won’t even get all your money back. And God knows who’s going to tell the employee how much he should expect to receive upon “cessation” – who’s running the actual numbers?
Also, for now PPF maturity is tax-free. But I fully expect PPF proceeds also to be brought under the ambit of EET in time to come – sooner than later.
But once again, excellent analysis. I am becoming a subscriber directly as I finish typing this! :))

• Thanks Sandeep 🙂 Use the code CMSPECIAL and you’ll get a discount 🙂
I agree, PPF will also be made EET soon.

• Shrikant Shenoy says:

There is a noble reason behind this. For most, PF is the only source of funds for retirements. Sadly over all the years in the past, people have been withdrawing amounts from PF as and when required (read education, marriage, etc.) during service. If withdrawn post retirement people would spend PF corpus on similar spendings and would be left with hardly anything to sustain themselves for rest of life.
Pls note that nothing is taxable if you convert 60% of that corpus into annuities. What the government is now forcing is to at least have 60% of your corpus turned into pension annuities so that they get steady income post retirement.
This was very well planned to be done since almost 15 years or so but Govts would only talk rather than in implement it. Finally it has been done now.
It may seem to pinch when people first read abt it now but in longer run it will end up securing lot of retired people’s lives.

• Mayuresh says:

Man, in a private organization no one works until 58 years, what if I retire in 50 years , then should I wait for another 8 years to get my hard earned funds?

• Amu says:

I exited from a company 2 yrs back and yet to claim my epf. The a/c however was stopped from being credited 2 yrs back.. If I attempt to claim it now, will it be taxed as per the new rule?

• Vishal says:

Excellent explanation Deepak

• Arun Jayant says:

Had the same question Ishwar had. And then another one. Suppose I change jobs and transfer the EPF corpus accumulated at a previous job into my EPF account with my present employer after 31st March 2016, this corpus (and the interest accrued on it until my retirement) should be exempt from tax. But will it actually be? Won’t some dumb Babu levy a tax on it, refusing to acknowledge that this lumpsum “contribution” after 31st March 2016 is nothing but a transfer of my own hard earned money into my present EPF account. Doomsday. As it is we have so many RTIs for EPF being filed. And am sure implementation of this new tax rule will bring in several unnecessary complications.

• Man, that would be crazy I agree!

With the advent of UAN(Universal Account Number) you no longer need to transfer PF money.. You just give your UAN to the new employer. Your money resides in your account only. Further your amount is not taxed if you buy annuities for 60% of the balance at the time of retirement (of fresh contributions after 01-04-2016)

• Krishna says:

Nagesh, UAN number still involves lot of manual process. It would have been better, if employer can link your UAN number based on PAN card. About the annuities, I don’t see much benefit, this is again a crazy thing to keep your 60% of the hard earned money for getting peanuts.

• Gannu says:

I think taxing somebody’s life-time savings is attricious. Instead the Government could have proposed tax only on the interest earned. The logic for this is that the savings was itself effected on post-tax salary. And taking any part of such savings would actually be double-jeopardy.

• Reena says:

Just wondering, what about the VPF contribution.

• Somnath De says:

Hi Deepak,
I am bit confused when you said PPF nothing is changed.
“In case of superannuation funds and recognized provident funds,
including EPF, the same norm of 40% of corpus to be tax free will apply in
respect of corpus created out of contributions made after 1.4.2016.” – What is meant by “recognized provident funds” ? Does not it mean PPF?
Somnath

• Somnath De says:

Hi Deepak,
What about VPF? Is it taxable?
Somnath

• Rajiv says:

Hello Deepak,
I had moved out of India this Jan, 2016, and I dont think I am coming back soon. Am I also impacted by the taxation? Also will I be impacted by complete withdrawal only at 58?

• Have answered Anil too on this. None of your current corpus will be taxed. But you can only withdraw your own contribution (and its interest) now – the rest is given only when you’re 58.

• Shivam says:

I think all kinds of Provident Funds (i.e. PPF and VPF) comes in the same tax rules. Please clarify . According some media reports Jayant Sinha came in and clarified that all sorts of PF (EPF,PPF,VPF) will be governed by the same tax rules

• venkta says:

Hi Deepak
i am contributing to VPF and the amount is over and above the 1.5 lakh tax benefit limit.
so my VPF is amount is already taxed in the 30 pc bracket. Now can you tell me again this will get taxed at the time of withdrawal by another 30 pc ? Thi sis ridiculous if it is …

• anil says:

Hey Deepak
I’m moving abroad for employment, and no longer will have a resident salary and thus no PF contribution. My employment will end on 31st march 2016.
Two quick questions
a.) Will i be taxed as per new norms?
b.) since i’ve completed 5+ years will i be able to withdraw the entire amount or as per latest rule withdraw my contribution and the interest ?
Thanks for the wonderufl writeup!

• Currently, existing corpus is not taxed even at exit, so you’re okay on that note.
But you can’t withdraw your employers contribution. That’s only available when you turn 58 even if you go abroad…

• anil says:

Thanks Deepak!

• Kanchan Dutta says:

Hi Deepak,
Why do you think that one cannot withdraw employer’s contribution if going abroad? The gazette on 10-Feb-2016, left paragraph 69(1)(c) untouched. This is the “ONLY” paragraph that talks about immigration out of India.
As per gazette on 10-Feb-2016 issued by ministry of labour, they have only modified paragraphs:
– 26A subparagraph 1
– 68-NN
– 68-NNN
– 68-O
– Added a new paragraph 68-NNNN
– Modified 55 years to 58 in paragraph 69
– Omitted paragraph 69(1)(e)
– Omitted 69(2) and (5)
Rest is left untouched. I’m not sure why EPFO doesn’t have clarity over immigration cases. If anyone has left India, why government would like to keep her or his money till she or he attains 58 years. She or he may not even come back. This is ridiculous.
Thanks

• Yudheer says:

Please do not give false impression to all, please also explain why government has done that and explain about annuity funds.

• Somnath De says:

Mr. Yudheer
If you have that information could you please explain. We are in shock after the budget speech of Finance Minister,
Regards,

• kishor says:

I understand that EPF & NPS are retirement products. one need to remain in till retirement. PPF is for 15 years & then extendable at option. It can not be considered as retirement product but can be considered as EEE saving product. Hence might have not included in the rule. Also wish it shall not be included…!!!

• I believe the new rules also specify a limit for employer contribution. So if one over invests more than that amount, his contribution is also not going to be matched. Or did I interpret the rules incorrectly?

• MD FAIZ AKRAM says:

What about Public Provident Fund (PPF) ? Is its withdrawal taxable? Many News Channels are telling even PPF is Taxable.

• vinodjhunjhunwala says:

Absolutely self goal By BJP’s Govt. One of the stated principles by Arun Jaitley ,when he took over finance ministry , was to ensure “consistency” in tax laws . Now , EPF has been EEE (Exempt-Exempt_Exempt ) right from beginning-There is no justification at all to tinker with that . EPF is compulsory . Had it been optional ,Govt could be justified in withdrawal of tax exemption . I hope FM will realize his mistake and roll over the proposal.

Why do they introduce additional complications in the Budget year on year instead of simplifying it.
Can the employers offer an option to opt out of PF contribution when joining a company or is it mandatory?

• Abhay says:

Very very disappointed with this tax axe. For so many years I have patiently built my corpus in EPF and PPF and was certain that my hard earned money is safe and without any tax obligation. It used to give me peace of mind. Irony is that only the honest people face the regulations.

• Jagan says:

After going thru the current budget taxation rules, 2 things come to my mind:
1. BJP Govt. is in a way promoting tax evasion, black money. Let me explain. Why would people comply(where ever they can hide) if they are burdened with so much taxes. If govt. is serious abt better life of its people @Retirement, they shud have made it tax-free. You expect old people @60-70+ with poor resources at disposal, burdened with responsibilities like grown up children’s marriage, their further studies, etc be able to sit and calculate taxes that how much I invested(forced to put BTW for EPF) in which year, how much of that is my contri. and how much my employer’s and how much interest accrued on this amount and how much of pre-Apr 2016 and….. People will try to evade taxes in some ways or adjust loss in this respect via concealment in some other way by taking cash and not cheques.
I always say this and I will always keep saying this again & again- “When will Indians stop being Slaves and come out of crab mentality”. No Govt. thinks how to enable growth, income, employment with whatever resources we have and minimizing spurious expenses(Babus Salary increases, foreign trips, corruption, and I can go on till the cows come home.). God when will this happen….:( 🙁
2. Wish I had never voted for BJP. (BJP you will never have my votes going forward). Now I feel that a dumb govt.(congress) was better than a greedy govt(BJP). I wish we were living in a Democracy and we the people of India could have an actual say to approve/reject such crap laws and not just take it as slaves do thinking it is their destiny.

Absolutely correct.This is actually betrayal under the guise of equality. All those who had contributed in the past for several years had done that on an agreement prevailing then. They have been playing around with interest and deprived people of decent return on these investment. Now they are trying to tax the maturity payment at the retirement also under some pretext to give benefit some body else. This is grossly unfair and unjustified

• Amit Sharma says:

Hi Deepak, One question. Suppose I have changed my employer 2 yrears back and haven’t withdrawn my PF from last employer.
Now I am planning to withdraw it, so will that be taxable? Keeping in mind since no funds are adding to it from last 2 years and interest might be credited.

• You can take out only your own contribution. Employers contribution is locked till you are 58. Only additions of money after April 2016 will see the new tax apply, current stuff is tax free even at maturity

• O Pramod says:

My sincere request all salaries persons not to put any single vote for this Govt. We are the only one who get out hard earned money at the end of every month before deducting the Tax !

• D P DAS says:

My PPF account will mature on 01.04.2016 and the maturity value will be around Rs.7,00,000/-. Whether it would be taxable on maturity as per current budget implementation or not?

• suprakash says:

How will I buy an annuity if I do not get the money. Will they not deduct the tax on 60% at source the moment I withdraw even if its only for buying an annuity?

• Sunil says:

I have been contributing for VPF through my employer. WIll that also be taxed effective 1st April 2016.
Do i continue my VPF contribution or withdraw them from this financial year. Thanks much!

• According to the article “http://www.thehindu.com/business/Economy/ppf-remains-tax-exempt-revenue-secretary/article8298775.ece” only 60% interest will be taxable. Could you please clarify?

• Avijit Das says:

I opened a PPF A/c. on 07.02.2001 and the present balance will be Rs.6,92,000/- as on 31.03.2016 after crediting interest for 2015-16. My date of birth is 03.06.1959. At present my age is 56+. I took voluntary retirement from a nationalized bank on 26.11.2011 and my present income from the sources of pension is Rs.3,60,000/-.p.a. Kindly let me know, whether my above PPF amount of Rs.6,92,000/- will attract any tax liability on maturity on 01.04.2016, as I have decided to purchase a flat for self residence with the above amount and some fund received at the time of my voluntary retirement from my employer bank.

• Ganesh says:

I have a question. if somebody plans to retire @45, and if they can only withdraw his/her own EPF contribution and after 13 years they go to PF office and take the employer contribution. Does it sound like a smart move, I don’t think so. In 13 years lot of things would have changed. Governments is simply playing with salaried class people’s money.

Does this mean that, sooner or later, the exemption from Life Insurance maturity payment exempted under Sec 10(10)( D ) will also be taken out sooner or later ? If that is exempted, then how will that alone stand out under EEE category.

• Varun says:

In a way, is this really double taxation cause one was anyway contributing to PF from salary that was post tax (atleast for those cases where PF itself goes beyond 1.5L). Now on exit if one pays 30% on the 60% of the new contribution (principle and interest), its on income that has been already taxed once, well atleast the principle. Am I reading this right!!?
I would imagine it would be a really tough calculation to do over the years as it will difficult to break the interest new contribution has earned vs. old corpus on a year on year basis. It certainly possible but it makes self calculation and checks more difficult.

• Ramesh says:

What if I do not use the EPF contribution for 80C since my other savings such as LIC cover for the same?
Even then my 60% withdrawal be taxed?
Also as you have mentioned, PPF contribution comes from the savings after the tax. So there should be no withdrawal tax. Even if a rule is passed, it should be taxed only for the interest income and not on the contribution.

• J N Amrolia says:

Deepak, I am 67. Have an ongoing PPF account. Going by what you have said earlier I do not have to worry about tax on withdrawal or buy annuities. In any case it is a bit too late in the day for me to buy annuities.

• Arjun says:

You have posted wrong information.
No tax on PPF; only interest to be taxed for EPF. Tax will be levied only on accrued interest on 60 percent of employee provident fund (EPF) contribution

• NOne of this is in the finance bill. The accrued part is what Mr. Adhia has “said”, but I woould like to see written confirmation.

• Sivaguru says:

I have query we paying ppf is after paying out income tax every we pay tax on our basic DA Hra still why they deduct tax at time of claim
In such a case no employees will like to work on epf concept

• Monish says:

I have written an article demonstrating the impact of EPF taxes on middle class employees you can find it here… I believe your users will benefit from this information please share it to spread the awareness and help people understand the impact with numbers http://bit.ly/1SeHwZ0

Sir,
Now it is clarified by Revenue Secretary that tax shall be levied only on only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt. – See more at: http://indianexpress.com/article/business/budget/budget-2016-tax-ppf-stays-on-exemption-list-only-epf-interest-to-attract-tax/#sthash.uJHRAke0.dpuf
As per your article, 60% of total corpus shall get taxed.

• Mani says:

Does it even make sense? Mutual fund investments over 1 year are tax free and such a long retirement lock in is taxed?

• Ani says:

Mr. Deepak
An employee who works for an organization for 9 continuous years quits his job middle of 2015. Does not join a job post that. Now what happens if he goes for PF withdrawal?
1. You say that old corpus accrued till March 31st 2016 is not taxed.
2. What happens to the EPS amount of rs.1250 p.m. accrued over this 9 years period?
3. You also say that only employee contribution can be withdrawn. What happens to Employer contribution? Will it stay in EPFO office for rest of his life? I read that post 5 years full service whole PF can be withdrawn if no employment for more than 60 days.
And less than 10 years if service, even full EPS can be withdrawn. Which one is true.

• Ani says:

http://www.bemoneyaware.com/blog/eps/
Mr Deepak
Hope the above link has info which will give certain answers to EPS withdrawal and EPF withdrawal.

• Shabana says:

Dear All,
Kindly help me i have having some doubts.
I have resigned from the company on July 2015, But still now my PF is not processed.
I have made my money clearance on Dec 2015 for company.
Then it is 2 months over still they didn’t process my PF and telling me that i need to wait as EPF Rules changed.
This new rules was implemented in Feb 2016.
Does it applicable for me..
Kindly clarify

• ashish says:

There is no pension for State as well as Central Government employees, in spite of dedicating whole life in that respective departments. But, there is one section who are still eligible for PENSION, getting it and will remain there forever. Plz stop the pension of those and bring them to EPF, scheme of EET and then only know where the shoe pinches.

• prabhu says:

I have the following questions
1) if I want to take loan on PPF for kids marriage, How much money Will I get? And what interest I have to pay on EPF account?
2) if I want to take loan on PPF for kids school, How much money Will I get? And what interest I have to pay on EPF account?
3) Assume, Amount Rs 30 Lakhs accumulated at age 58, I don’t want to withdraw entire amount from EPF account , Shall I withdraw in partial amount like Rs 3 Lakhs per year for next 10 years, So I will get interest on EPF amount and amount withdrawn also within less taxable limit. Is It Possible?
4) Assume, If Rs 18 Lakhs(60% of Rs 30 Lakhs) moved to NPS (Annuity) after age 58. After expiry of a worker at age 58 or after age 60, Will entire Rs 18 lakhs and interest earned on Annuity will be transfered to Heir without tax?
4A) Assume, If worker accumlated Rs 30 Lakhs at Age 58 before transferring amount to NPS(Annuity) or before Age 58, will 60% PPF amount given to heir be a taxable?
5) Assume if person yearly salary is 3 lakh at the time of retiring and he accumulated Rs 8 Lakhs (Rs 500/month EPF contribution for 30 years), So Total amount earned is Rs 11 Lakhs, So tax will be calculated for 10% slab or 30% slab?
One observation, As per my observations, most of low level company workers are also getting salary (includes bonus) more than Rs 15000 average monthly salary, So everyone will be taxed more than 30% at the time of PPF withdrawal, Even if worker gets salary Rs 8,000 per month now, surely he will get more than Rs 15000/month at the time of retirement, so his PPF will get taxed at 33% as per my observation.