In case you have withdrawn money from the employee's provident fund (EPF) during FY2020-21, you will have to report this while filing your income tax return for the said year. This must be done despite the amount withdrawn being outside the tax net.
Experts say that income received from EPF withdrawal, even in cases where it is exempt and will have no tax effect, needs to be reported in Schedule EI of the ITR form.
"The purpose of reporting is to facilitate the tax authorities to reconcile the expenditures commensurate to the income of the taxpayer during assessments. Hence, it is advisable to do that. The non-disclosure may attract penalties for non-reporting or incorrect reporting," Sandeep Sehgal, director- taxes and regulatory, AKM Global, a consulting firm explains.
Amid the second wave of the COVID-19 pandemic, the Employees' Provident Fund Organization (EPFO), the retirement fund body, allowed its members to avail a second non-refundable COVID-19 advance.
Under this provision, non-refundable withdrawal to the extent of the basic wages and dearness allowances for three months or up to 75 percent of the amount standing to member's credit in the EPF account, whichever is less, is provided.
Members can apply for a lesser amount also.
The subscribers can put a claim for 'advance' withdrawal via EPFO's unified portal -- unifiedportal-mem.epfindia.gov.in. The claim is then forwarded to the employer for approval. Once approved, the amount is credited to the subscriber's account.
These withdrawals are taxable in some instances and exempt under other instances.
If a person withdraws EPF post completion of five-year service, then it’s tax-free. But, if the person withdraws it without completing the five-year tenure, in that case, it’s taxable with a few exceptions such as employment termination and medical emergencies.
The EPF amount is also taxable if there is a break in the contribution to the account for five continuous years. In that case, the entire EPF amount is considered as taxable income for that financial year.
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