EPFO: Tax provision on partial withdrawals raises questions
10% TDS levied on partial withdrawals in specific cases before completing five years of service.
- Oct 17, 2025,
- Updated Oct 17, 2025 4:02 PM IST
Even as the Employees’ Provident Fund Organisation (EPFO) has simplified rules for premature withdrawal, a provision under which premature withdrawals before completing five years of service attract income tax may need to be reviewed. Experts highlighted that EPFO may also have to tweak its system now to identify these cases.
According to Section 192A of the Income Tax Act 1961, the Regional Provident Fund Commissioner has an obligation to deduct tax at source at the rate of 10% if the subscriber withdraws funds before completing five years of service and the amount is more than Rs 50,000. In cases where the subscriber withdraws funds without furnishing a PAN, a tax of 20% is levied. TDS is not levied in cases of termination of service due to Ill health of the member, discontinuation of business by the employer, completion of the project or any other cause beyond the control of the member.
Previously, partial withdrawals such as those for marriage, education and house renovation required a minimum service of at least five years. The objective was to discourage premature withdrawals from the EPFO to protect the retirement savings of subscribers.
The Central Board of Trustees of the EPFO, in its meeting on October 13, approved a proposal to simplify the partial withdrawal provisions of the EPF Scheme by merging 13 provisions into three types: essential needs such as illness, education and marriage; housing needs and special circumstances for which no reason must be attributed. Withdrawal limits have been liberalised — education withdrawals allowed up to 10 times and marriage up to five times, from the existing limit of a total of three partial withdrawals for marriage and education in all.
The requirement of minimum service has also been uniformly reduced to only 12 months for all partial withdrawals.
Kuldip Kumar, Partner, Mainstay Tax Advisors, noted that there may be tax implications for members following the standardisation of the minimum service period requirement to 12 months. “Under existing tax rules, PF withdrawals made before completing five years of continuous service are subject to tax, except under certain specified circumstances. Previously, this was not a concern, as partial withdrawals — for purposes such as house purchase, renovation, or marriage — required a minimum PF membership of five years or more,” he pointed out, adding that EPFO should clarify and make aware of these aspects to ensure that members know that, in the case of partial withdrawals, they may lose the associated tax benefits.
EPFO should clarify and make aware of these aspects to ensure that members know that, in the case of partial withdrawals, they may lose the associated tax benefits, he underlined, adding that it may also need to amend or upgrade its IT systems to identify such partial withdrawal cases and withhold tax accordingly.
Even as the Employees’ Provident Fund Organisation (EPFO) has simplified rules for premature withdrawal, a provision under which premature withdrawals before completing five years of service attract income tax may need to be reviewed. Experts highlighted that EPFO may also have to tweak its system now to identify these cases.
According to Section 192A of the Income Tax Act 1961, the Regional Provident Fund Commissioner has an obligation to deduct tax at source at the rate of 10% if the subscriber withdraws funds before completing five years of service and the amount is more than Rs 50,000. In cases where the subscriber withdraws funds without furnishing a PAN, a tax of 20% is levied. TDS is not levied in cases of termination of service due to Ill health of the member, discontinuation of business by the employer, completion of the project or any other cause beyond the control of the member.
Previously, partial withdrawals such as those for marriage, education and house renovation required a minimum service of at least five years. The objective was to discourage premature withdrawals from the EPFO to protect the retirement savings of subscribers.
The Central Board of Trustees of the EPFO, in its meeting on October 13, approved a proposal to simplify the partial withdrawal provisions of the EPF Scheme by merging 13 provisions into three types: essential needs such as illness, education and marriage; housing needs and special circumstances for which no reason must be attributed. Withdrawal limits have been liberalised — education withdrawals allowed up to 10 times and marriage up to five times, from the existing limit of a total of three partial withdrawals for marriage and education in all.
The requirement of minimum service has also been uniformly reduced to only 12 months for all partial withdrawals.
Kuldip Kumar, Partner, Mainstay Tax Advisors, noted that there may be tax implications for members following the standardisation of the minimum service period requirement to 12 months. “Under existing tax rules, PF withdrawals made before completing five years of continuous service are subject to tax, except under certain specified circumstances. Previously, this was not a concern, as partial withdrawals — for purposes such as house purchase, renovation, or marriage — required a minimum PF membership of five years or more,” he pointed out, adding that EPFO should clarify and make aware of these aspects to ensure that members know that, in the case of partial withdrawals, they may lose the associated tax benefits.
EPFO should clarify and make aware of these aspects to ensure that members know that, in the case of partial withdrawals, they may lose the associated tax benefits, he underlined, adding that it may also need to amend or upgrade its IT systems to identify such partial withdrawal cases and withhold tax accordingly.