The Employee Provident Fund administered by EPFO (Employee Provident Fund Organization) helps employees save a small fraction of their salary every month and thereby, build a corpus which is tax exempt for use during the fag end of their lives or retirement. To make the optimum use of the EPF account, employees must be aware of what a provident fund account entails and how it is operated.
The Income Tax Department has instructed EPFO to deduct Tax (TDS) from the withdrawal amount, in case if the withdrawal takes place before completing five years of service. TDS on PF withdrawals has been introduced to promote long term savings, discourage pre-mature withdrawal and to ensure compliance with provisions of Income Tax relating taxability of such withdrawals in certain cases.
Here, we will be discussing about the new provision of section 192A to understand the tax implication on premature withdrawal from EPF account and applicability of TDS on PF withdrawal.
EPF Withdrawals – Provisions related to TDS
No TDS on PF withdrawals in respect of the following cases:
- On Transfer of Provident fund from one PF account to another account
- On Termination of service due to ill-health of EPF member and withdraws his PF accumulation,
- Completion of project or discontinuation of Business by employer or other cause beyond the control of EPF Scheme’s member.
- If EPF withdrawal amount is less than Rs. 50,000
- In case employee withdraws more than or equal to Rs. 50,000/-, with service less than 5 years but submits Form 15G /15H along with the PAN card.
TDS will be deducted in respect of the following scenarios:
If employee withdraws PF amount more than or equal to Rs. 50000/-, with less than 5 years of services, then:
- a) TDS will be deducted on PF @ 10% if PAN is submitted and Form-15G/15H is not submitted.
- b) TDS will be deducted on PF @ maximum marginal rate (i.e., 34.608%) if employee fails to submit the PAN Card.
Is TDS Justified on EPF
The TDS on premature withdrawal of PF is an old rule. Earlier, you had the responsibility to pay tax in case of premature withdrawals. But now the government has directed the EPFO to deduct tax at source. However, if you feel that excess TDS is charged, then you can claim tax refund through the income tax return.
Methods to Avoid TDS on PF Withdrawals
Withdraw your PF amount after 5 years of continuous service (full 60 months with one or more employers) to avoid TDS on PF.
Ensure that your partial or total withdrawal request comes under one of the special cases that are beyond the control of the employee.
If your EPF balance is below 2.5 lakhs and you have no other taxable income, then you can use Form 15H to withdraw your PF (before completion of 5 years of service).
To comply with 5-years requirement, you can transfer your PF money from previous job to EPF account and then withdraw.
The form 15G/15H gives you the respite from TDS on PF. Do note that these forms are the declaration that your total income is below the limit of taxable income. Form 15H is submitted by the senior citizens whereas Form 15G is submitted by the applicants below the age of 60 years. Often people withdraw EPF just after leaving the job. However, in such case they must transfer PF balance to their new EPF Account.
Note that if you withdraw EPF after 5 years of service then there would be no TDS on PF withdrawals. Let us hope that this manoeuvre may reduce the tendency to withdraw your Provident Fund Investment before completing five years and in case of new employment the chances of transferring PF subscription may also increase.