EPF withdrawals before 5 years? How Form 121 changes TDS exemption claims

Members must check their service period, withdrawal amount and estimated annual income before filing the new declaration to avoid TDS on claims

Employees’ Provident Fund (EPF) subscribers withdrawing their savings before completing five years of continuous service will need to use Form 121 instead of Forms 15G and 15H to claim exemption from tax deducted at source (TDS) from tax year 2026-27 onwards, according to the Employees’ Provident Fund Organisation (EPFO)’s latest X post.

 

The change follows the introduction of the Income-tax Act, 2025, and the Income-tax Rules, 2026. Form 121 allows eligible taxpayers to declare that their estimated tax liability for the relevant tax year is nil. However, submitting the form does not automatically make every EPF withdrawal tax-free. Subscribers must meet the applicable eligibility conditions before claiming TDS exemption.

 

 

For employees changing jobs, facing a financial emergency or withdrawing their accumulated provident fund before completing five years of service, understanding the rules is important to avoid an unexpected tax deduction.

 

When is TDS deducted on EPF withdrawals?

 

Withdrawing EPF savings before completing five years of continuous service can trigger TDS, subject to the applicable rules and exemptions. Under the provisions described by EPFO, TDS applies when the withdrawal exceeds Rs 50,000, at a rate of 10 per cent where the employee furnishes a valid Permanent Account Number (PAN).

 

However, the five-year condition does not mean that every withdrawal before this period automatically attracts TDS. Certain situations, including transfers between provident fund accounts and specified circumstances beyond an employee’s control, may qualify for relief under the applicable provisions. The tax treatment of the withdrawal must also be assessed separately from the deduction of TDS.

 

What is Form 121 and who can use it?

 

Form 121 is a self-declaration through which an eligible taxpayer states that their estimated tax liability for the relevant tax year is nil. The Income Tax Department's user manual says the declaration allows the payer to avoid deducting TDS on specified payments if the prescribed conditions are met.

 

The form replaces the earlier distinction between Form 15G and Form 15H under the new tax framework. The eligibility criteria, however, remain relevant. Form 121 is not available to everyone who wants to avoid TDS.

 

Before submitting the declaration, EPF subscribers should check:

 

Total estimated income: Whether their estimated tax liability for the tax year is nil after accounting for applicable deductions and rebates.

 

Withdrawal amount: Whether the proposed withdrawal crosses the threshold at which TDS applies.

 

Service period: Whether they have completed five years of continuous service and whether any exception applies.

 

Eligibility: Whether they qualify to furnish Form 121 under the prescribed rules.

 

The declaration should be submitted to the relevant payer before the income is credited or paid, preferably at the start of the tax year, according to the Income Tax Department's guidance.

 

Does Form 121 make an EPF withdrawal tax-free?

 

No. This is an important distinction for employees planning to withdraw their provident fund.

 

Form 121 concerns the deduction of tax at source. It does not, by itself, determine whether the underlying withdrawal is taxable. A taxpayer may still have to report taxable income and pay any tax due when filing their income tax return.

 

For example, an employee who leaves a job after three years and withdraws an eligible EPF balance cannot assume that submitting Form 121 will automatically exempt the entire amount from tax. Their total income, eligibility for the declaration and the tax treatment of the withdrawal must all be assessed.

 

What should EPF subscribers do now?

 

Employees planning an early withdrawal should first check their service history, the amount they intend to withdraw and their estimated income for the tax year. They should also verify the applicable rules before submitting the declaration.

 

From tax year 2026-27, eligible subscribers should use Form 121 rather than Forms 15G or 15H for the relevant TDS exemption claim. Filing the correct form can help prevent an eligible withdrawal from facing an unnecessary upfront tax deduction, but it does not remove any final tax liability that may arise.