Withdrawal of EPF before 5 years

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This query is : Resolved

vani (Querist)

05 October 2019
For withdrawal of EPF before 5 years should one use ITR1 or ITR2. WeI used ITR1 and showed the taxable portion under Income from other source and it was returned as defective. Now I find in ITR2 Schedule OS having "Accumulated balance of recognized provident fund taxable u/s 111" added to Income chargeable at special rates. Should we add the taxable portion of EPF here in Schedule OS. Kindly advice. Thanks

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

30 May 2020 The tax would be levied on the aggregate amount of the employer's contribution, interest thereon and the interest earned on the employee's own contribution. As far as the principal amount of investment made by the employee is concerned, the same would be taxable if the employee has claimed a deduction u/s 80C of the Act

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. The Income tax return form has also been amended to align the taxability and 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.

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