Form 121, introduced under India’s new income-tax framework, allows eligible taxpayers to declare that their estimated tax liability for the relevant tax year is nil and request an exemption from tax deducted at source (TDS) on specified payments. However, employees withdrawing their Employees’ Provident Fund (EPF) savings should understand that filing this form does not automatically make the withdrawal tax-free.
This distinction is particularly important for employees who withdraw their provident fund before completing five years of continuous service, including those changing jobs or dealing with financial emergencies. Although Form 121 may help eligible individuals avoid an upfront tax deduction, it does not independently determine the taxability of an EPF withdrawal or remove any final tax liability.
Under the Income-tax Act, 2025, and Income-tax Rules, 2026, Form 121 replaces the earlier Forms 15G and 15H. Before submitting the declaration, EPF subscribers should review five important points.
1. Check Your Continuous Service Period
Withdrawing EPF savings before completing five years of continuous service can result in tax liability, subject to applicable exceptions. Employees should review their employment and provident fund records before deciding to withdraw their accumulated balance.
When changing employers, transferring the existing provident fund balance to the new employer’s account can help maintain continuity of service. Certain circumstances, including specified situations beyond an employee’s control, may also qualify for relief under the applicable provisions.
It is important to distinguish between the tax treatment of the withdrawal and the rules governing TDS. Even if a declaration helps prevent an upfront deduction, the underlying withdrawal may still be taxable.
2. Understand the EPF Withdrawal Amount and TDS Rules
Under the rules outlined by the Employees’ Provident Fund Organisation (EPFO), TDS generally applies to eligible premature EPF withdrawals exceeding Rs 50,000. When an employee provides a valid Permanent Account Number (PAN), the applicable TDS rate is 10%, subject to the relevant provisions and exceptions.
Before requesting a withdrawal, subscribers should check the applicable threshold and deduction requirements. They should also remember that TDS is a tax payment collected in advance and may not equal the final tax liability.
The amount ultimately payable depends on the applicable tax rules and the individual’s overall tax position. Therefore, the TDS deduction and the final tax treatment should be assessed separately.
3. Calculate Your Estimated Total Income
Form 121 is intended for eligible taxpayers who estimate that their tax liability for the relevant tax year will be nil. Before filing the declaration, employees should calculate their expected income from all sources and consider the deductions and rebates available under the applicable provisions.
Salary income, interest earnings and other taxable receipts may affect the overall calculation. Looking only at the EPF withdrawal without considering other income could lead to an incorrect declaration.
Employees should carefully assess their estimated tax liability before submitting Form 121. The declaration should reflect their actual financial circumstances and eligibility under the applicable rules.
4. Confirm Whether You Qualify for Form 121
Form 121 is not available to every taxpayer simply because they want to avoid TDS. Eligibility depends on the prescribed conditions, including the requirement that the estimated tax liability for the relevant tax year is nil, along with other applicable requirements.
EPF subscribers should verify their eligibility before submitting the declaration to the relevant payer. Filing an incorrect declaration or using the form without meeting the conditions does not automatically protect an individual from tax consequences.
Checking the requirements in advance can help employees avoid errors and understand whether the form is appropriate for their circumstances.
5. Remember Your Income-Tax Return Obligations
Submitting Form 121 to prevent TDS does not automatically exempt the underlying income from taxation. If an EPF withdrawal is taxable under the applicable provisions, the employee may still need to report it in the income-tax return and pay any tax due.
For instance, an employee who withdraws EPF savings after three years of service should not assume that filing Form 121 makes the entire withdrawal tax-free. The applicable treatment depends on the employee’s service history, the circumstances of the withdrawal and their overall tax position.
For withdrawals during tax year 2026-27, eligible taxpayers should use Form 121 instead of the earlier Forms 15G or 15H, as applicable under the new framework.
Understanding the eligibility conditions, service period and tax treatment before withdrawing EPF savings can help employees avoid unnecessary upfront deductions while preventing the mistaken belief that a TDS exemption declaration automatically removes their tax liability.
Disclaimer
This article is intended for general informational and educational purposes and is based on the information provided in the source material. Income-tax provisions, EPF withdrawal rules, TDS thresholds and eligibility requirements may depend on individual circumstances and applicable law. Readers should verify the latest official guidance from the Income Tax Department and EPFO or consult a qualified tax professional before making financial or tax-related decisions. This article should not be treated as professional tax or legal advice.
