In order to discourage premature withdrawals from employee provident fund, government has introduced section 192A in finance act 2015. As per this section, TDS amount has to be deducted out of the withdrawals from employee provident fund or EPF if certain conditions are satisfied.
Employee provident fund withdrawals are taxable in India if the employee doesn’t render continuous services for a period of at least 5 years. While calculating 5 years of continuous service, time spent in previous employments is to be included if EPF with earlier employers is transferred to present employer.
If total period of service is less than 5 years, then entire withdrawals will be taxable in the financial year in which such withdrawn has taken place.
The persons responsible for deduction, is required to deduct tax at the time of payment of the accumulated EPF balance if conditions to TDS Under Section 192A is satisfied.
In this article we will be discussing 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.
Rate of TDS and time of deduction
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. In Budget 2016-17 this limit has been increased from Rs 30, 000 to Rs 50, 000 with effect from the 1st day of June, 2016. Therefore, U/s 192A, tax at present to be deducted is at the rate of 10% on the amount withdrawn from employee provident fund account.
Higher rate of TDS U/s 192A
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.
However, 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.
When tax not to be deducted U/s 192A from EPF withdrawals
From above discussion, we know that no tax should be deducted out of withdrawals from employee provident fund if the amount withdrawn is less than equal to Rs. 50,000.
If the person withdrawing the amount out of EPF has submitted form 15G or 15H based on his age, then TDS is not deducted. You can submit these forms only when after considering the withdrawals, you are not liable to tax. Form 15H is submitted by senior citizens and 15G is submitted by persons below the age of 60 years.
Based on the conditions of section 192A and other provisions of tax law, in following cases you should not deduct tax from EPF withdrawals;
- Transfer of employee provident fund balance from one employee provident fund account to another EPF A/c. This generally happened due to change of employer.
- Balance in Employee Provident Fund account is withdrawn because of 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 50,000 and employer has rendered less than 5 years of continuous services.
- 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 50,000, with service less than 5 years.
Form 15G and 15H on withdrawal from Employee Provident Fund
There may be cases where the tax payable on the total income of the employees may be nil even after including the amount of premature 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 premature withdrawal.
This means, an employee can give a declaration in Form No. 15G to the effect that his total income including taxable premature 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 premature withdrawal.
Form No 15G and 15H cannot be accepted by the department if amount withdrawal is more than the basic exemption limit.