Will Rs 32 lakh EPF corpus withdrawal be tax-free? Are there better options than withdrawing?

These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.

I contributed to EPF until 2021 while working at an MNC. Since moving to a startup in 2022 that doesn’t offer PF, my EPF account has been inactive. The corpus is about Rs 32 lakh, and I’m considering withdrawing and reinvesting it. Will the withdrawal be tax-free since my total service exceeds five years? Are there better options than withdrawal, such as transferring to NPS? What would be a good long-term investment strategy for this?

Umesh Kumar Jethani Founder, ApkiReturn: Your EPF withdrawal will be completely tax free under Section 10(12) , as you have completed more than five years of continuous service. However, retaining the corpus in your dormant EPF account may be a prudent option, as it continues to earn an interest rate of about 8.15%, which remains tax-free under Section 10(11), while also benefiting from a sovereign backed framework.

Transferring to NPS isn’t recommended as only 60% is tax-exempt at maturity versus EPF’s complete exemption. If with drawing for reinvestment, consider allocating 60-70% to equity mutual funds (LTCG is taxed at 12.5% above Rs 1.25 lakh under Section 112A), 20-30% to debt instruments, and 10% in liquid funds.


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I was an NRI for several years, and on returning to India in 2010, I worked for nearly four years. In 2015, I opted for voluntary retirement at the age of 46. My Provident Fund (PF) balance is still in my EPF account and continues to earn interest. Since I retired voluntarily, can I withdraw the PF amount without tax implications? What is the most tax-efficient way to withdraw it?

Shubham Agrawal Senior Taxation Adviser, TaxFile.in: If you withdraw your Provident Fund balance before completing five years of continuous service, its components will be taxed differently. Your own (employee's) contribution is generally not taxed withdrawal if you have claimed deduction under Section 80C earlier. However, the employer’s contribution is treated as salary income and taxed according to your income tax slab, since it was not taxed when the contribution was made.

The interest earned on both your and your employer’s contribution is also taxable and added to your income under ‘Income from other sources’. Tax deducted at source (TDS) applies if the amount withdrawn is Rs 50,000 or more. The TDS rate is 10% if the Permanent Account Number (PAN) is provided. If it is not submitted, TDS is deducted at the maximum marginal rate.

Voluntary retirement is not covered in cases where the PF withdrawal is tax-free. It’s done in case of termination of service due to the ill health of a member, discontinuation of business by an employer, completion of a project, and other causes beyond the control of the member.

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