TDS on EPF Withdrawal of More than Rs 50,000

Have you been religiously putting a hoard of your money in EPF? Ever wondered about withdrawing money from the EPF? Though   the process of withdrawing money from your EPF may seem tedious, it in fact is transparentInstances of being taxed on an EPF is done on a case to case basis. Your worries should not be on the tax but on the wholesome returns from your EPF. 

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What is TDS?

TDS is an income tax collection source formulated under the Indian Income Tax Act of 1961. Tax Deducted at Source or in short TDS is collected by the Income Tax Department of India. Collection of TDS comes under the purview of the Central Board for Direct Taxes and Department of Revenue. TDS basically involves deduction of income at a prescribed percentage. 

Importance of TDS

Under this Act, every citizen is responsible for making a determined payment such as commission, professional fees, salary etc., and is held accountable to deduct at source a defined amount of tax before making payments in full to its receiver. This deducted amount will be credited to the kitty of the Government and is ultimately used for several Government developmental projects. 

What is EPF?

Employee Provident Fund also known as EPF was structured to give a sizeable amount of retirement benefit to the employee.  As per the EPF terms and conditions, an employee contributes a nominal amount,which is deducted from the salary of the employee towards this fund.  

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. 

How to Avail of EPF

EPF benefits are only available to EPF members or members of the provident fund. 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 to only those establishments who have more than 20 or more odd employees. 

EPF is not applicable in the state of Jammu and Kashmir.

TDS on EPF Withdrawal

As per the Budget of 2016-17 and the Finance Act, 2016 the threshold of Provident Fund withdrawals was raised from 30,000 to Rs. 50,000 for Tax Deducted at Source amended under section 192A of Income Tax Act, 1961. TDS is applicable on withdrawals wherein the accumulated balance is more than 50,000 and the Employee has worked for less than five years.

This new amendment is a discouragement for premature withdrawals from Provident Funds and a leap towards promoting long-term savings. These long-term savings ultimately mean more money for you at the end of your work term. 

As per the provisions of the TDS Act, the rate of deduction is 10 percent on the submission of the Permanent Account Number (PAN). 

TDS on EPF Balance Withdrawal Rules/Guidelines

According to TDS on EPF balance withdrawal New Rules/Guidelines: 

  • TDS is not applicable in case of EPF withdrawal of Rs. 50,000 and less.

  • TDS is not applicable if employee withdraws more than or equal to Rs.50, 000 with service less than 5 years but submits Permanent Account Number (PAN) along with form 15 G/15H.

  • TDS is not applicable where withdrawal of EPF after 5 years of service

  • In case you have worked for less than 5 years and plan to withdraw your EPF you can do so but don’t forget to Fill in Form 15G along with your Permanent Account Number (PAN). Feel rest assured TDS will not be deducted.

  • TDS is not applicable in case of your EPF transfer from one account to another EPF account.

  • TDS is not applicable where termination of service of the employee, or on discontinuation or contraction of Business by the Employer or any cause beyond the control of EPF Scheme’s member or employee. In such case PAN, Form Number 15G/15H along with Form Number nineteen need to be submitted. In such instances, no TDSincome tax shall be deducted as per Rule eight of Schedule Fourth to the Income Tax Act, 1961.

  • TDS is not applicable in case where termination of service due to ill health, of EPF Member on his or her accumulated withdrawal. In such case PAN, Form Number 15G/15H along with Form Number nineteen need to be submitted. In such instances, no TDSincome tax shall be deducted as per Rule eight of Schedule Fourth to the Income Tax Act, 1961.

  • TDS is applicable on your EPF balance if it is withdrawn before 5 years of your continuous service.

  • TDS is applicable in case of EPF withdrawal amount is more than Rs.50, 000. Earlier the pecuniary limit was Rs. 30,000.

  • Submissionof Permanent Account Number along with Form 15g/15H and Form 19 is excluded in cases where the EPF members have rendered continuous service of 5 years or more, including service with former employer.

TDS on EPF Withdrawals Before a 5 Year Term

In case of EPF withdrawals before 5 years of service:

  • Tax Deducted at source: TDS is applicable @ 34.608% in case of NO Permanent Account Number (PAN)

  • Tax Deducted at Source: TDS @ 10% is chargeable when Permanent Account Number (PAN) is submitted without form 15 G/ 15H

  • Tax Deducted at source:TDS is relevant at the time of payment. Under Section 192A of Income Tax Guide Act, 1961TDS will be deducted.

  • If the amount of withdrawal is more than Rs. 2, 50,000/- and Rs. 3, 00,000/- respectively then Form Nos. 15G and 15H cannot be accepted.

  • It does not mean that the EPF withdrawals cannot be taxed in case where Tax Deducted at Source TDS is not applicable.

It is pertinent to note that if you withdraw your EPF balance before the expiry of your five years of continuous service, it is taxable in the year in which the withdrawal has happened. Additionally, your employer’s contributions along with the accumulated interest amount will be also be due as “profits in lieu of salary”. Accumulated Interest on your employee contributions will be taxed under the heading “Income from other sources”. The tax deductions claimed on your contributions will be invalidated and shall be liable to tax.

Quick Look on the Working of TDS in case of Service less than 5 years

Remember TDS is not applicable on EPF withdrawal after 5 years of service. If you’re withdrawing your EPF before the completion of the fifth year than you need to do the following given below:

Submission of PAN Non-Submission of PAN Non-Applicability of TDS
If you submit your PAN with Form 15G/15H then TDS is applicable. If you do not submit your PAN then TDS of 34% is applicable. A/c transfer of PF
If you submit your PAN without Form 15G/15H then TDS of 10% is applicable. Services are terminated beyond the control of the Employee.

Points to Remember

  • Form 15G is namely for claimants below the age of 60 years and the 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 falls on or under the limited minimum exemption.

  • Form 15G cannot be submitted by NRIs.

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

Forms Required for EPF Withdrawal

Form 19 is also known as the EPF withdrawal form. It is necessary to quote your Permanent Account Number for all claim transactions. 

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

This form can also be submitted by you in case of tax on your total income including when the EPF balance withdrawn is nil.Remember Self declaration Forms 15G and 15H are to be submitted in duplicate.Forms 15G and 15H are not acceptable in cases where the amount of withdrawals is over 2, 50,000 or 3, 00,000 respectively. 

At the End

EPF is a lucrative and beneficial scheme that promotes financial benefit. The EPF Member has the benefit of exemption from TDS with no taxable income only when he or she has submitted all the required duly filled forms along with Permanent Account Number.TDS is deductible at the time of payment of EPF under Section 192A of the Income Tax Act, 1961.

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