Nisha asked 1 month ago
I had withdrawn my Provident Fund (PF) balance after leaving my earlier employer, but since I left service before completing 5 years, TDS was deducted on the withdrawal.
Now, this TDS and the full PF withdrawal amount (including my contribution, employer’s contribution, and interest on both) is appearing in my Form 26AS.
My confusion is regarding income tax treatment while filing ITR:
- Should the entire PF withdrawal be added to my salary income?
- Or should my own PF contribution (which was already deducted from my salary earlier) not be taxed again?
- Is the employer’s contribution and interest to be shown as salary income, while the interest on my contribution should be shown under “Income from Other Sources”?
- Or should the whole PF amount simply be shown as “Other Income”?
Basically, I want clarity on how PF withdrawal (with TDS deducted) needs to be reported in the ITR, and whether my own contribution will get taxed again even though it was already part of my salary earlier.
Manish answered 1 month ago
Taxation of PF Withdrawal Before 5 Years of Service – How to Show in ITR?
Withdrawing your Provident Fund (PF) balance before completing 5 years of continuous service has important tax implications. Many salaried individuals face confusion while filing their Income Tax Return (ITR) because their PF withdrawal and TDS (Tax Deducted at Source) appear in Form 26AS, but they are unsure how to report it correctly.
Let’s break this down step by step.
Why is PF Withdrawal Before 5 Years Taxable?
Under the Income Tax Act, if you withdraw your EPF balance before completing 5 years of service, the amount becomes taxable.
- TDS @ 10% is usually deducted if the withdrawal amount exceeds ₹50,000.
- If PAN is not provided, TDS may be deducted at the maximum rate (20%+).
Components of PF Withdrawal and Their Tax Treatment
Your PF balance consists of different parts, and each is taxed differently:
-
Employee’s Own Contribution
- This is the amount deducted from your salary every month.
- Since you already paid tax on it when your salary was taxed earlier, this part is not taxed again.
-
Employer’s Contribution
- Taxable as “Income from Salary” in the year of withdrawal.
-
Interest on Employer’s Contribution
- Also taxable as “Income from Salary”.
-
Interest on Employee’s Own Contribution
- Taxable under “Income from Other Sources”.
-
Section 80C Deductions Reversed
- If you claimed deduction under Section 80C in earlier years for your own contribution, those deductions will be added back to your income in the year of withdrawal.
How to Show PF Withdrawal in ITR?
When filing ITR, you must report each component in the right head of income:
✅ Salary Income
- Employer’s contribution
- Interest on employer’s contribution
- Any 80C deduction claimed earlier
✅ Other Income
- Interest on employee’s own contribution
✅ No Double Taxation
- Your own PF contribution (principal) is not taxed again, since it was already included in your taxable salary when contributed.
TDS Credit in ITR
The TDS deducted by the PF Department will reflect in Form 26AS / AIS.
👉 While filing ITR, you must claim this TDS against the tax payable on your total income.
Example
Suppose you withdraw ₹3,00,000 after 4 years of service:
- Employee’s own contribution: ₹1,20,000 (already taxed earlier, not taxable again)
- Employer’s contribution: ₹1,00,000 (taxable as Salary)
- Interest on both: ₹80,000 (say ₹50000/- on employee’s contribution and ₹30000 on employer’s contribution ) (interest on employer’s part under Salary; interest on employee’s part under Other Sources)
In ITR, you will:
- Show ₹1,30,000 under Salary Income
- Interest of ₹50,000 under Other Sources
- Claim TDS already deducted as per Form 26AS
Key Takeaways
- PF withdrawal before 5 years is taxable.
- Your own contribution is not taxed again, but any earlier 80C benefits get reversed.
- Employer’s contribution and its interest = Salary Income.
- Interest on your own contribution = Other Income.
- Always check Form 26AS / AIS and ensure correct TDS credit.
Pro Tip: If you are changing jobs, consider transferring your PF balance instead of withdrawing. This helps you avoid tax and ensures continuity of service for PF purposes.