TDS on EPF Withdrawal of More than Rs 50,000

What is TDS?

TDS (Tax Deducted at Source) is an income tax collection source formulated under the Indian Income Tax Act of 1961. Tax Deducted at the source of income is collected by the Income Tax Department of India. The collection of TDS comes under the purview of the Central Board for Direct Taxes and the Department of Revenue. TDS basically involves deducting income at a prescribed percentage from the source of income. A person or company that makes your payment has to deduct tax while making the payment. This deducted tax from your payment has to be remitted to the Central Government's account. You can claim this TDS amount (deducted based on Form 26AS) from the tax department after filing your tax details in a financial year. If you want to withdraw your Employee Provident Fund, you must pay TDS on PF withdrawal in certain cases. In this article, we'll check more on EPF withdrawal rules. However, before going into details, let's explore why TDS is important. 

Why is TDS So Important?

TDS (Tax Deducted at Source) is applied to various types of income, including: 

• Salary of a person

• Interest received

• Dividends

• Commission received, and many more

The Government uses TDS to tax a person's income at the source. This means that this tax is deducted where income is generated or generated. While income tax is collected at a later date, TDS is collected at the source. In the case of salary, TDS is deducted by the employer from the employee payment and submitted to the concerned government department. In return, a certificate is issued. The Government collects TDS to minimize the evasion of tax. The total amount of money the Government receives through TDS is ultimately used for several Government developmental projects. Now that we know why TDS is important, we'll learn: Is PF taxable? However, before that, it is important to know more about Employees Provident Funds.

What is EPF?

Employee Provident Fund (EPF) is a retirement benefits program. Employees' Provident Fund Organization (EPFO) provides retirement benefits to those who are registered with this program. If you are a government employee, both you and your employer will contribute 12% of your salary to the EPF fund in your name. In the case of non-government organizations, the contribution percentage is 10%.   

Top 6 Benefits of EPF

EPF is a very beneficial scheme of the Government of India. Some of these benefits include:

• Interest on money earned is not taxed.

• Financial security benefits like emergencies, retirement, resignation, death, etc.

• Healthy source of long term financial planning.

• Source of pension post retirement.

• Life insurance cover for subscriber under this scheme. This comes into affect in the absence of a group cover. 

• Equal contribution by both employee and employer (12% for government employees and 10% for non-government employees).

How to Avail of EPF

EPF benefits are only available to EPF members or provident fund members. An easy way to become a member is to join an establishment. Your date of joining is in itself your first day of membership. However, EPF is available only to establishments with 20 or more odd employees.  

Earlier, EPF was not applicable in the state of Jammu and Kashmir. However, after the abrogation of Article 370, the EPF scheme is now applicable for the J&K employees. However, the eligibility criteria differ from other states in India. Any industry or factory in Jammu and Kashmir with more than 5 employees registered under Schedule I must be registered for EPF. Any establishment or business notified in the Government Gazette by the Government also comes under EPF. So, all the EPF withdrawal rules are applicable in J&K too.

Is PF Taxable?

The interest you earn on your excess contribution (over the Rs. 2.5 lakhs limit in a certain financial year) to EPF or VPF (Voluntary Provident Fund) is taxable. This has come into effect from April 1, 2021. In fact, TDS will also be levied under certain conditions. In the next sections, we will explore the EPF withdrawal rules and TDS on PF withdrawal.

EPF Withdrawal Rules

The EPFO allows its members to withdraw money. When you complete your service in a certain company, you can receive your EPF fund, which has accumulated and grown over the years. In certain circumstances, you can withdraw the money before retiring. So, let us check these EPF withdrawal rules: 

• When you reach 54 years of age, you can withdraw 90% of your EPF fund.

• 75% of the EPF fund can be withdrawn if you are unemployed for one month. The rest 25% can be withdrawn in the second month of your unemployment.

• You will have to pay tax on PF withdrawal if you withdraw money from your EPF before the completion of the first 5 years.

Tax on EPF Withdrawal: Important Pointers

1. Tax and TDS on EPF Withdrawal before 5 years

   • TDS on EPF withdrawal is applicable if you withdraw Rs. 50,000 or more from your employee provident fund before five years of continuous service.

   • No TDS will be applicable if your withdrawal amount is less than Rs. 50,000.

   • No matter the amount of withdrawal, you will have to mention this EPF withdrawal as your return on income if you come under the tax bracket.

   • You must pay a 10% tax rate if you withdraw over Rs. 50,000 without PAN.

   • You do not have to pay TDS on EPF withdrawal if you fill up the 15H and 15G forms. In this case, too, you have to mention EPF withdrawal as your return on income.

2. TDS on EPF Withdrawal (Unrecognized)

   No matter whether you have completed your 5 years of service, you will have to pay tax on EPF withdrawal in case of unrecognized PF. A PF becomes unrecognized when the Commissioner of Income Tax has not approved it.

Forms Required for EPF Withdrawal

According to EPF withdrawal rules, Form 19 is important. It is also known as the EPF withdrawal form. EPF withdrawal rules say that it is necessary to quote your Permanent Account Number for all claim transactions.  

Two forms, namely 15G and 15H, are required to be filed to declare that the employees' income would not be taxable after receiving the payment of their EPF accumulations from the retirement fund body.  

You can also submit this form in the case of a tax on your total income. This is also applicable when the EPF balance withdrawn is Nil. It is important to remember that you have to submit the duplicate of Self-declaration Forms 15G and 15H Forms, as per EPF withdrawal rules. 15G and 15H are not acceptable in cases where withdrawals are over 2, 50,000 or 3, 00,000, respectively. 

Points to Remember

• Form 15G is meant for claimants below the age of 60 years. In this case, EPF withdrawal rules say that Permanent Account Number has to be quoted in each transaction.

• 15 G is not permissible to every individual or Hindu Undivided Family but only to those:

  • whose tax on the evaluated income for the year is Nil and

  • the accumulated interest income from all sources and securities comes on or under the limited minimum exemption

• Form 15G cannot be submitted by NRIs (as per EPF withdrawal rules).

• Form 15H is for senior citizens who are 60 years and above. If you are an EPF member, remember to quote your Permanent Account Number while filling out your form.

Final Words

EPF is a lucrative and beneficial scheme that promotes financial benefit during retirement and at times of emergency need. The EPF Member has the benefit of exemption from TDS on EPF withdrawal only when they have submitted all the required forms (duly filled) along with Permanent Account Number. Tax on EPF withdrawal is deducted at the time of EPF payment under Section 192A of the Income Tax Act, 1961.

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