Tax on EPF withdrawals – Some Important Facts

The Employees’ Provident Fund (EPF) is an investment by salaried individual for retirement or for long term requirements. But with now a days people don’t continue with same organization for longer period. They keep on switching the employment for either good hike or for batter career opportunity. So at this point they withdraw the EPF investment that they did with their previous employer, and that is point where the tax provisions come into picture.
The Finance Act, 2015 (20 of 2015) has inserted a new section 192A regarding the payment of accumulated provident fund balance due to an employee. The provision shall take effect from June 1, 2015.
As per the new provisions of Section 192A, Employees’ Provident Fund Organization (EPFO) will deduct tax at source on PF withdrawals where accumulated PF withdrawal amount is more than Rs 30,000 and the employee has worked for less than five years with the establishment. Income Tax shall be deducted at source (TDS) by EPFO at the time of payment of the accumulated PF balance.
According to the circular, TDS will be deducted at the rate of 10 per cent provided PAN or permanent account number is submitted to EPFO.
However, in case Form 15G or 15H is submitted by the member, then no TDS shall be deducted. These forms are to declare that their income would not be taxable after receiving payment of their PF accumulations from retirement fund body EPFO.
While Form 15H is submitted by senior citizens (above 60 years of age), Form 15G is submitted by claimants below the age of 60 years.
TDS will be deducted at the maximum marginal rate of 34.608 per cent if a member fails to submit PAN, form 15G or 15H.
However, there are certain exceptions to deduction of TDS by EPFO these cases are
  1. TDS shall not be deducted in case of transfer of PF from one account to another PF account.
  2. TDS shall not be deducted if the employee is terminated from service due to ill health of member and discontinuation or contraction of business by employer.
  3. TDS shall not be ducted if the employee withdraws PF after a period of five years of continuous service, including service with former employer.
  4. TDS shall not be deducted where payment accumulated balance is less than Rs 30,000 but the member has rendered service of less than 5 years.
  5. TDS shall not be deducted if the employee withdraws an amount more than or equal to Rs 30,000 with service of less than 5 years but submits Form 15G/15H along with his/her PAN.
RECOMMENDATIONS
  1. Transfer your PF accumulations to PF account with new employer
  2. Don’t forget to submit Form 15G/15H as applicable
  3. Submit the application for withdrawal of PF accumulations only when you have your PF service of 5 years or more including all your former employments.

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