TDS on withdrawal of Provident Fund contribution Applicable from 1st June 2015

For the last 15 days, I would have got at least 10 queries about TDS on withdrawal of ProvidentFUND. Here is how the question goes ‘my employer is asking me to submit by name Form 15G. If I won’t submit, they deduct tax it seems. Can you help me to submit Form 15G? Is this something new? Or is the employer asking it unnecessarily?

Yes. This is something new (TDS on withdrawal of PF), applicable from 1^st June 2015!

Section 192A of Income Tax Act (inserted videFINANCE Bill, 2015) reads as under –

Notwithstanding anything contained in this Act, the trustees of the Employees’ ProvidentFUND Scheme, 1952, framed under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) or any person authorized under the scheme to make payment of accumulated balance due to employees, shall, in a case where the accumulated balance due to an employee participating in a recognized provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of the accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent :                                                                                                                                                                                                                                                           Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees:                                                                                                                                                                                                                                                                                                                                                                    Provided further that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate

Can this be explained in simple terms?

• Tax (TDS) is deductible from accumulated lump sum payment in case the employee has not rendered continuous service of 5 years or more, including service with former employer. (This means, if the amount is withdrawn after 5 years of service, no TDS will be done)
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• Tax is not deductible if taxable premature withdrawal is less than Rs.30000 (irrespective of period of service)

• If the employee furnishes his PAN details to the deductor (i.e., PF department) TDS u/s 192A will be made at the rate of 10% of taxable premature withdrawal.
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• If PAN details are not furnished, tax is deductible at the maximum rate of tax (34.608%)

So, what about 15G?

I am coming to this point. 15G is the facility of filing self-declaration for non-deduction of tax under section 197A. Suppose, the amount receivable as ‘taxable premature withdrawal from providentFUND is less than the basic tax exemption limit (in case of individuals Rs.250000 for FY 2015-16), the employee can submit form 15G. If this form is submitted, the department will not deduct tax.

However, the employee will have to pay tax on premature withdrawal amount at the time of filing the return, if the total income exceeds basic tax exemption limit.

Is there any exemption from TDS?

Under the following situations, TDS won’t be done by the department –

• Transfer of PF from one account to another PF account. If the employee has resigned before completion of 5 years but he joins another employer and PFMONEY with the current employer is transferred to the new employer, no TDS will be made.
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• Termination of service due to ill health of the employee, discontinuation or contraction of business by employer, completion of project or other cause beyond the control of the employee

Why TDS is not applicable on withdrawal of PF amount for employees who have completed over 5 years of service?

Accumulated balance payable to an employee from a recognized ProvidentFUND shall be exempt in the hands of employees provided he puts in 5 or more years of service.

What is ‘taxable premature withdrawal income’?

In case the accumulated balance in PF account is withdrawn within 5 years of service, such amount is subject to Income Tax. The break of the contribution and its taxability is as under-

• Employers contribution is fully taxable
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• Employee’s contribution is taxable to the extent of claim done u/s 80C. If the employees’ contribution is not claimed u/s 80C, than such amount will be tax-free.
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• Interest earned on the entire contribution is taxable

 Recommended Read:

• Payment Employee Provident Fund through Internet banking only
• Tax implication on withdrawal from Employee Provident Fund (EPF)
• The basics of Contribution to Employee Provident Fund

Illustrations

1. Avinash has worked in Karma Software for 4 years and has now resigned from service. He has applied for withdrawal of PF amount of Rs.650000 and of which the taxable premature amount is Rs.350000. Can he submit Form 15G and avoid deduction of tax (TDS)?

No. The person responsible for payment (i.e., the department) shall not accept the declaration Form 15G where the amount of income exceed the maximum amount which is not chargeable to tax. So, the above case, the taxable income is Rs.350000 which is more than the basic exemption limit of Rs.250000. Hence, the department will deduct tax at 10%

2. Ambarish is withdrawing PF amount of Rs.250000. His total 6 years of service includes 2 years of service at Make Enterprises. When he left Make enterprises, he transferred the PF amount to his new employer, Break Enterprises. Is this amount of Rs.250000 subject to TDS?

No. If the employee has rendered continuous service with his employer for a period of 5 years or more, no TDS will be done. For the purpose of calculating 5 year time-limit, service rendered with the previous employer shall be included, if the previous employer also maintained recognized providentFUND and the provident fund balance of the employee was transferred by him to the current employer.