EPF withdrawal before 5 years and Disclosure in ITR-2

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Subramani V (Querist)
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18 August 2025 EPF amount withdrawn : 8,50,000 TDS : 85000 and Years of service : 3.5 years
1) Should this amount be shown as income from other sources or Salary
2) If shown as salary then where to show and what should be name of employer
3) There is a separate line item in income from other sources for accumulated balance of Recognised PF taxable at special rates with breakup of income benefit and tax benefit. Is it to be shown in this heading.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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18 August 2025 The EPF withdrawal before 5 years of continuous service is taxable. The breakup is reported under two heads:

Employer’s contribution + interest on employer contribution: Taxable as "Salary".

Employee’s own contribution if claimed under 80C: The amount previously claimed as deduction becomes taxable as "Salary".

Interest earned on employee's own contribution: Taxable as "Income from Other Sources".

In your income tax return (ITR), under the income head "Salary", include:

Employer’s share (contribution + interest) and any 80C deductions claimed for your own contribution.

For the "name of employer", mention the name of the employer with whom the EPF account was maintained.

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Subramani V

Subramani V (Querist)
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18 August 2025 Thank you for your prompt and clear reply sir. Noted the income bifurcations and their corresponding heads.
Just an additional doubt regarding the " accumulated balance of recognised pf taxable u/s 111" being shown under " income chargeable at special rates" as I had read an economic times article which said that EPF withdrawal requires back calculation of income and tax benefit year wise and the tax would be calculated according to that.
Have linked the article below
https://economictimes.indiatimes.com/wealth/tax/new-itr-forms-ask-for-year-wise-pf-contribution-details-in-case-of-taxable-withdrawal/articleshow/65715645.cms?from=mdr

Is this required to be done

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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18 August 2025 Yes. The taxation is triggered in the year of withdrawal; however, the tax is computed as per the
mechanism laid down in Rule 9 of the Fourth Schedule to the Act, as per the disclosure requirements in accordance with the said Rule. As per the said Rule, the tax is computed for each of the earlier years as if the fund was not a recognized fund and the differential tax is worked out which has to be paid in the year of withdrawal. This means that the tax to be paid on the withdrawal is calculated as per what would have been payable by the individual if no deduction were allowed for EPF and according to income tax slab applicable to him/her at that time.

Subramani V

Subramani V (Querist)
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18 August 2025 Noted Sir. so how to disclose the EPF withdrawal amount then . If I show it as salary then tax will be as per slab . If shown under accumulated balance of recognised provident fund then I need to calculate income benefit and tax benefit ...Kindly clarify which option is to be taken

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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18 August 2025 Recompute tax for each of the relevant earlier years as if:
The EPF was not recognized, i.e., no deduction was allowed under:
Section 80C (for employee's contribution),
Section 10(12) (for accumulated balance),
Section 17 (for employer's contribution and interest).

Determine the differential tax:
The difference between the tax paid earlier and the recomputed tax (without EPF exemptions).
Pay the differential tax in the year of withdrawal:
This additional tax is added to income in the year of withdrawal and taxed as per the slab applicable in those earlier years — not the year of withdrawal.

Assume you claimed deduction for EPF contributions under section 80C for 3 years and withdraw the EPF in the 4th year.
Under Rule 9:
Your tax returns for the past 3 years will be recomputed as if you had not claimed those deductions.
The difference in tax will be collected in the 4th year, i.e., the year of withdrawal.

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