Section 192A : TDS On Employee Provident Fund (PF) Withdrawal

| 2 years ago

 provident fund

TDS Rate Under Section 192A

TDS will be deducted by the trustee of EPF at the following rates if at the time of payment of the accumulated provident fund (PF) balance is Rs.50000/- or more-

a) if PAN provided-TDS @ 10%

b) if PAN NOT provided- TDS @ 34.608% (Maximum marginal rate)

 

For Recognised EPF Account, TDS under section 192A shall not be deducted- 

  1. If you transfer your old EPF account to another EPF account.
  2. If you have been terminated from service due to his ill health or discontinuation/contraction of business by an employer or completion of a project or other cause beyond the control of the member.
  3. If you withdraw money from the EPF account after 5 years of continuous service, including service with the former employer.
  4. If your withdrawal from EPF account is less than Rs.50000/-
  5. If you submit Form I5G/15H along with your PAN.

Note: Point 1-4 are covered in rule 8 of Part A of 4th Schedule.

Let’s understand the reasons for TDS on EPF accumulations.

There are 2 components of Employee Provident Fund (EPF)

  1. Employee’s contribution and Interest thereon
  2. Employer’s contribution and Interest thereon

These component accumulated over the period of employment with one or more employers.

In the year of contribution,

  1. Employee’s contribution gets an income deduction under section 80C.
  2. Employer’s contribution up to 12% of salary is exempted. [Salary includes Basic, DA, Commission based on fixed percentage of sales]
  3. Interest up to 9.5% p.a is exempted. Interest in excess of 9.5% shall be taxed as income from other sources.

Similarly, in the year of withdrawal also, any amount withdrawn from the recognised EPF account shall be exempted.

However, for claiming the exemption in the year of withdrawal, an employee should fulfil few conditions prescribed under rule 8 of Part A of Fourth Schedule. On the non-fulfilment of these conditions, an employee becomes liable to pay tax on the withdrawal amount of EPF account.

The trustee is obliged to deduct TDS on EPF withdrawn if an employee doesn’t satisfy the prescribed condition of rule 8. [rule discussed in 2nd paragraph]

 

Income Tax on EPF Withdrawal Before 5 years (Recognised Fund)

Any withdrawal from the recognised EPF account shall be fully taxable and TDS will be deducted if-

  1. The employee doesn’t render 5 years of continuous service, and
  2. Such non-continuance was not due to  employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee

Income Tax on EPF withdrawal (Component wise):

Sl No Particulars Taxable Income Head
1 Employer’s Contribution Yes Income from salary (By filling form 10E, you can claim relief under section 89(1) on these balances)
2 Interest on Employer’s Contribution Yes Income from salary
3 Employee’s Contribution No Not Applicable
4 Interest on Employee’s Contribution Yes Income From Other
Sources

In calculating 5 years of continuous service, your tenure with the previous employer is also included. If you transfer your EPF balance from old account to new account and your total employment is 5 years or more, no TDS is deducted. 

Income Tax on EPF Withdrawal After 5 years (Recognised Fund)

Any withdrawal from the recognised EPF account is NOT taxable

  1. If an employee renders 5 years of continuous service, or
  2.  if, though he has not rendered such continuous service,

    the service has been terminated by reason of the employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee.

 

Interest earned on PF account after retirement

Regardless of the period of service, interest earned on PF account after retirement is taxable under the head “Income from other sources”.

For paying taxes on interest portion, an employee has an option to either:

  1. Pay tax in the year in which it earned, or
  2. To defer the tax payment till the year of withdrawal [Cash basis]

Example:

PF balance on the date of retirement: 30 lakh

[Including interest earned during employment]

Interest earned in 1st year after retirement:  Rs.2.4 Lakh

This interest income of Rs.2.4 lakh is taxable.

 

Explanation:

  1. Probation Period doesn’t form part of service period- If an employee is held initially on probation for few months and after some time, he is brought on rolls and the employer starts contribution to EPF account.If he resigns after completing 5 years from the date of joining, any withdrawal from EPF account will be fully taxable and TDS will be deducted.

Happy Learning!

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