TDS on EPF Withdrawal

Employees Provident Fund (EPF) is a statutory scheme that has been designed to provide retirement benefits to the employees. The norms concerning EPS provides for the levy of tax on its withdrawals if the conditions mandate it so. The mechanism of TDS has been enacted on provident fund withdrawals to dissuade the members of EPF from pre-mature withdrawals, which effectively makes way for long-term savings. This article deals with the provision of TDS on EPF withdrawal.

A Brief on TDS

Tax Deducted at Source (TDS) is an income-tax mechanism wherein the employer deducts a portion of salary, interest, commission, etc., of the employee so as to remit the same to the government. Its administration is jointly vested with the Central Board of Direct Taxes (CBDT) and the Department of Revenue.

Scenario of Deduction

TDS is enforced on EPF withdrawals of employees whose service-period ranges below five years. With reference to the rate of levy, 10% of TDS will be deducted on the submission of PAN. In the absence of a PAN, TDS will be deducted at the maximum marginal rate, which in this case is 20%.

Non-Applicability of TDS

The provisions of TDS aren’t enforced in the following cases:

The total withdrawals amount to less than Rs. 50,000 (it was Rs. 30,000 earlier).
Transfer of a PF account.
Termination of the employees' service for reasons of ill health, discontinuation of the business by the employer, completion of the project for which the employee was assigned for or any other causes beyond the control of the employee.
If the sum of Provident Fund scales below Rs. 50,000 but the employee has been in the service for less than five years.
If the employee withdraws a sum which of Rs. 50,000 or more with a service period that ranges below five years but furnishes Form 15G/15H along with the PAN.
Withdrawal of funds after the five-year mark.

Form 15GG and 15H

Form 15G and 15H are self-declaration forms which may be accepted in duplicate.
Form 15G is meant for individuals and HUF’s who are not recipients of any taxable income, and whose accumulated interest income from all sources and securities fall within the range of limited minimum exemption.
Form 15G is not applicable for NRI’s.
Form 15H is meant for senior citizens aged 60 and above.
Both of these forms are nor accepted from taxpayers whose withdrawals amount to Rs. 2,50,000 (in case of Form 15G) or Rs. 3,00,000 (in case of Form 15H).
PAN must be quoted by the members in these forms, as well as in Form 19.

The Five-Year Time Frame

We now understand that withdrawals before the five-year period will qualify for TDS deductions. On the same page, it may be noted that a similar time-frame is applicable if the tenure of the EPF member collides with different employees during this period.

Job Status

Employees who have rendered five years of service with an employer on a temporary and permanent basis might be forced to not consider their years of temporary enrollment while calculating the five-year period. This is because temporary employment wouldn't necessarily qualify for EPF provisions.

The Commissioner’s Recognition

Funds not endorsed by the Commissioner do not qualify for income tax benefits, the likes of which include the exemption of withdrawals after the period of five years. If the Commissioner doesn’t approve a fund, it is considered as an unrecognized provident fund.

Taxability of EPF

The taxability of EPF is determined for the following components:

The employee’s contribution.
Interest on employee’s contribution.
Employer's contribution.
Interest on the employer’s contribution.

Employee’s Contribution

These provisions are not taxed except on occasions where an employee has claimed deduction under section 80C. Therefore, an additional tax on 80C will be incurred for this purpose.

Interest on Employee’s Contribution

Interest on employee’s contribution is levied as tax under the head “Income from other sources.”

Employer’s Contribution and Interest in the Employer’s Contribution

The provisions pertaining to the employer’s contribution and interest on such contribution is taxable under the head “Income from salaries.” Note: relief on section 89(1) could be claimed on these balances.

Refund on TDS of EPF Withdrawal

The members of EPF are entitled to claim a refund on EPF withdrawal if their income is less than Rs. 2,50,000 in a financial year. For this purpose, the concerned taxpayer needs to depict the EPF withdrawal as salary income while filing the income-tax returns.