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When an employee can withdraw Provident Fund

When an employee can withdraw Provident Fund

A retirement savings plan called Provident Fund (PF) is required for most employees. The employee and the employer each make a shared contribution to a retirement corpus. Under specific conditions, employees may withdraw the accrued sum from their PF account. 

After accumulating five years or more of continuous service, an employee can withdraw the whole sum from their PF account. This implies that in order to remove the balance, the employee must have made contributions to the PF account for at least five years. This provision was put in place to make sure the employee would have a sizable corpus to fall back on in retirement. It’s also important to be aware that if an employee contributes to multiple PF accounts with various employers, the five-year service requirement will be determined separately for each account, and the employee will need to fulfil the five-year service requirement for each account before being able to withdraw the balance.

When an employee can withdraw Provident Fund

PF withdrawal rules

In addition, an employee’s PF account balance is withdrawable upon retirement or termination from employment. The most frequent justification for a PF withdrawal by an employee is this. In this instance, there are no tax repercussions to the employee’s withdrawal of the entire account amount, including the employer contribution. However, a portion of the surplus will be taxed if the employee withdraws the money before serving for five years.

The employee has the right to withdraw any remaining funds in their PF account in the event of a severe illness or disability that prevents them from working. This is done to give the employee some financial support during a trying period. To withdraw the balance, the employee must submit the necessary medical certifications to the provident fund office. In this scenario, the worker is permitted to withdraw up to 90% of the account’s balance, but they must finish the five-year service requirement first.

The nominee or legal heir may claim the remaining funds in the employee’s PF account in the event of death. In this instance, there are no tax repercussions when withdrawing the remaining balance.

It is significant to remember that there are various limitations on withdrawing funds from the PF balance. Except in limited circumstances, such as severe illness or incapacity, an employee is not permitted to withdraw the remaining sum before completing five years of service. A percentage of the account balance must be held in the account as a retirement corpus, so the employee cannot remove the entire sum at once. In the event of retirement, the employee may withdraw the entire balance after they turn 58 years old.

Tax consequences follow the withdrawal of the PF balance. A portion of the balance will be taxed if the employee withdraws it prior to five years of employment. The entire sum, however, can be withdrawn tax-free if the worker takes it out after completing five years of employment. A tax return must also be submitted by the employee for the year in which the balance is withdrawn. 

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