If you’re filing your Income Tax Return (ITR) for AY 2026-27, don’t assume that your Employees’ Provident Fund (EPF) account is completely off the tax department’s radar.
EPF-related scrutiny in income tax filing may not be triggered by the transaction itself, but by inconsistencies between EPF records, AIS (Annual Information Statement), Form 26AS, and the details reported in the Income Tax Return (ITR).
Since AIS has become a key verification tool for the Income Tax Department, even small mismatches or omissions can lead to scrutiny notices.
Here are five EPF-related situations that taxpayers should pay close attention to while filing their ITR in 2026.
1. Withdrawal before 5 years of continuous service – If a taxpayer withdraws EPF before completing 5 years of continuous service, especially while changing jobs instead of transferring the account, the entire withdrawal may become taxable as salary income.
Such withdrawals are reported by the Employees’ Provident Fund Organisation (EPFO) and may also reflect in Form 26AS if tax has been deducted. Issues arise when taxpayers incorrectly treat such withdrawals as exempt income in their ITR, leading to mismatches with AIS data and potential scrutiny, says CA (Dr.) Suresh Surana.
2. EPF contributions above Rs. 2.5 lakh – Another issue may arise when EPF contributions exceed Rs. 2.5 lakh in a financial year. In such cases, the interest earned on the excess contribution becomes taxable. Failure to report it correctly in the ITR may raise potential concerns and get the same flagged by the tax department.
3. Ignoring AIS while filing ITR – AIS plays a central role in the scrutiny process and must be carefully reconciled before filing the return. It contains details of EPF withdrawals, interest income, and employer contributions.
“Even if EPF income is exempt, it still needs to be disclosed in the appropriate section, such as Schedule EI. Any entry appearing in AIS but missing in the ITR is one of the most common reasons for scrutiny notices,” stated Surana.
4. EPF transfer mismatches between jobs – EPF transfer mismatches between jobs may also create compliance issues. Ideally, EPF should be transferred when switching employers, but many taxpayers end up with multiple unmerged accounts or incomplete transfer histories. This can result in inconsistencies between employment records in AIS and the taxpayer’s ITR, which may raise questions during assessment.
5. Incorrect classification of EPF withdrawal in ITR – Incorrect classification of EPF withdrawals is another major trigger. Withdrawals are exempt only when prescribed conditions under Section 10(12) of the Income-tax Act, 1961, are fulfilled. If a taxable withdrawal is incorrectly shown as exempt, it can lead to scrutiny.
If TDS has already been deducted on an EPF withdrawal, does the taxpayer still need to report the amount in the ITR?
Even if TDS has already been deducted on an EPF withdrawal, the taxpayer should still report the withdrawal in the Income Tax Return (ITR). TDS is merely a tax deduction at source and not the final tax liability. The taxpayer must disclose the EPF withdrawal, assess whether it is taxable or exempt, and claim credit for the TDS reflected in Form 26AS/AIS.
TDS credit must be claimed by matching the amount deducted by EPFO under Section 192A with Form 26AS/AIS. If excess TDS has been deducted and the taxpayer’s final tax liability is lower or nil, a refund can be claimed through the ITR.
As a practical safeguard, taxpayers should retain the EPF withdrawal statement, Form 16A (if issued), Form 26AS/AIS, and employment history records to substantiate the tax treatment adopted in the return, according to Surana.
Can a taxpayer receive a notice if an early EPF withdrawal appears in AIS but is omitted from the ITR?
A taxpayer may receive an income tax notice where an early EPF withdrawal occurs but is omitted from the Income Tax Return (ITR).
The Income Tax Department increasingly relies on data analytics and information matching, and any discrepancy between third-party reported information and disclosures made in the ITR may potentially trigger scrutiny or clarification.
An EPF withdrawal made before completing five years of continuous service may become taxable, subject to specified exceptions such as termination due to ill health, discontinuation of the employer’s business, or transfer of the accumulated balance to the EPF account of a new employer.
If such a withdrawal is reported in AIS, particularly where tax has been deducted at source (TDS) under Section 192A of the Income-tax Act, 1961, but the amount is not disclosed in the return, the tax system may flag the case as potential underreporting of income.
Taxpayers should also note that even where the EPF withdrawal amount is below Rs. 50,000 and no TDS is required to be deducted under Section 192A, the withdrawal may still need to be reported in the ITR if it is taxable.
The absence of TDS does not remove the obligation to disclose taxable income. Accordingly, if such a transaction appears in AIS or other reporting systems but is omitted from the return, it may still result in mismatch-related queries from the tax department, said Surana.
Further, even in cases where the taxpayer believes the withdrawal is exempt, non-reporting may invite clarification notices, as the department may seek an explanation for such non-reporting.
Taxpayers should therefore carefully review AIS, Form 26AS, and EPF records before filing their ITR, appropriately disclose the withdrawal, claim exemptions wherever eligible, and reconcile any TDS credit reflected in the records.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
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