Finance act 2015 has inserted a new section 192A in Income Tax Act 1961 related to the payment of accumulated balance from employee provident fund or EPF account due to an employee.
In this article we will be discussing these new provisions of section 192A to understand tax implication on premature withdrawal from EPF account or applicability of TDS on employee provident fund or EPF withdrawal.
Provisions of section 192A shall take effect from 1st of June 2015.
As per section 192A, from 1st of June 2015, withdrawals from EPF account exceeding Rs 30,000 will be tax deductible at the rate of 10% or the maximum marginal rate (i.e. 34.608%) if employee leaving EPF before completing 5 years of service.
Update: Budget 2016-17 has proposed to increase the limit of Rs 30, 000 to Rs 50, 000 with effect from the 1st day of June, 2016.
As per the provisions of Section 206AA of the Income Tax Act 1961, tax has to be deducted at the rate of 20% in case employee has not furnished PAN. Section 206AA is applicable in normal cases.
In case of EPF withdrawal, if employee does not have PAN or not furnished PAN to EPFS then tax will be deducted at the maximum marginal rate (i.e. 34.608%) from the provident fund account balances at the time of withdrawal.
TDS deduction on withdrawal from EPF account will not be applicable in following cases;
- Transfer of employee provident fund balance from one employee provident fund account to another EPF A/c.
- Termination of service due to ill health of member, discontinuation or contraction of business by employer, completion of project or other cause beyond the control of the member.
- Where employee withdraws from his or her EPF Account after a period of 5 years of continuous service, including service with previous employer.
- If withdrawal from EPF account is less than Rs 30,000
- In cases where member has submitted form 15G or 15H along with PAN even though employee’s withdrawal amount is more than or equal to Rs. 30000, with service less than 5 years.
Applicability of Form 15G and 15H on withdrawal from Employee Provident Fund or EPF account
There may be cases where the tax payable on the total income of the employees may be nil even after including the amount of pre-mature withdrawal.
For this purpose government has extended the facility of filing self-declaration for non-deduction of tax under section 197A of the Act to the employees receiving pre-mature withdrawal.
This means, an employee can give a declaration in Form No. 15G to the effect that his total income including taxable pre-mature withdrawal from EPF Account does not exceed the maximum amount not chargeable to tax.
On furnishing of such declaration, no tax will be deducted by the trustee of EPFS while making the payment to such employee.
Similar facility of filing self-declaration in Form No. 15H for non-deduction of tax under section 197A of the Act has also been extended to the senior citizen employees receiving pre-mature withdrawal.
Form No 15G and 15H cannot be accepted by the department if amount withdrawal is more than the basic exemption limit (for assessment year 2016-2017 basic exemption limit is Rs 250000 for form 15G and Rs 300000 for form 15H).
Employee Provident Fund or EPF account is mandatory for all employees earning up to Rs 15000 per month in firms employing over 20 workers. This limit of Rs 15000 per month has been raised recently from Rs 6500 per month.