EPF Withdrawals : New Provisions & Rules related to TDS

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EPFO (Employees Provident Fund Organization) has issued a new circular relating to applicability of TDS (Income Tax deduction at Source)  on EPF withdrawals. These new provisions are effective from 1st June, 2015. TDS is applicable on EPF withdrawal where accumulation (balance) is more than Rs.
 30,000/- (Rs 50,000) and the EPF member (Employee) has worked less than Five years.

(Budget 2016-17 update : In case of payment of accumulated balance due to an employee in EPF, the TDS limit is being raised from Rs 30,000 to Rs 50,000. So, TDS is NOT applicable if the PF withdrawal amount is less than Rs 50,000. This new TDS thresh-hold limit will be effective from 1st June, 2016 onwards.

Click on the below image to download EPFO’s latest notification on this new amendment.)

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As per EPFO’s circular, “the Finance Act, 2015 (20 of 2015) has inserted a new section ‘192A’ regarding the payment of accumulated provident fund balance due to an employee. The provision shall take effect from June 1, 2015.”

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EPF Withdrawals – Provisions related to TDS

TDS is NOT applicable in the following cases;

• On Transfer of PF from one account to another PF account (EPF A/c) .
• On Termination of service due to ill-health of EPF member and withdraws his/her accumulation.
• On discontinuation of Business by the Employer or any cause beyond the control of EPF Scheme’s member (Employee).
• If PF withdrawal amount is less than Rs 30,000 (new limit is Rs 50,000).
• If employee withdraws amount more than or equal to Rs. 30,000/- (Rs 50,000), with service less than 5 years but submits Form 15G /15H along with his / her PAN.

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TDS is applicable in the following scenarios;

• If employee withdraws amount more than or equal to Rs. 30000/- (Rs 50,000), with service less than 5 years, then:

a) TDS will be deducted @ 10% if Form-15G/15H is not submitted provided PAN is submitted.
b) TDS will be deducted @ maximum marginal rate (i.e., 34.608%) if employee fails to submit PAN.

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Below is the flowchart to understand these implications.

TDS on EPF Balance Withdrawal

Other Important points:

• TDS (Tax Deducted at Source) is deductible at the time of payment. TDS will be deducted under Section 192A of Income Tax Act, 1961.
• Form 15H is for senior citizens (60 years & above) and Form 15G is for individuals having no taxable income. Form 15G & 15H are self declarations and may be accepted as such in duplicate. (Do note that not every individual or HUF can submit Form no 15 G. Only the individual / HUF, whose tax on the estimated income for the year is NIL and the amount of interest income from all the sources / securities does not exceed the minimum exemption limit, can submit Form 15 G form. NRIs can not submit Form 15G)
• EPF Members must quote PAN in Form No.- 15G / 15H and in Form No. 19 (EPF Withdrawal Form).
• Members who have rendered continuous service of 5 years or more, including service with former employer, shall not be required to submit PAN and Form No. 15G/15H along with Form No. 19.
• Similarly, members whose service has been terminated due to his ill health, contraction or discontinuance of business of employer or other cause beyond the control of the member shall not be required to submit PAN, Form No. 15G/15H along with Form No. 19. In such cases, no income tax (TDS) shall be deducted as per Rule 8 of Fourth Schedule to the Income Tax Act, 1961.
• Form Nos. 15G and 15H cannot be accepted if amount of withdrawal is more than Rs. 2,50,000/- and Rs. 3,00,000/- respectively.
• If TDS is not applicable then it does not mean that the EPF withdrawals are not taxable. Do note that, if you withdraw your PF balance before the expiry of five years of continuous service, then it is taxable in the year in which withdrawal has happened. In addition to this, your employer’s contributions along with the accumulated interest amount will be taxed as “profits in lieu of salary”. Interest accumulated on your(employee) contributions will be taxed under the head “Income from other sources”. The tax deductions claimed on your contributions will be revoked or rolled back, and shall be liable to tax.

These new amendments may discourage pre-mature PF withdrawals and may promote long-term savings.