Tax on EPF withdrawals: Know what rules say about deduction, exemption

New Delhi, Sep 11, 2024 

To ensure accurate TDS deduction it is important to submit your PAN when applying for provident fund withdrawal

Understanding taxation is essential for effective personal finance management, and one area that frequently causes confusion is Tax Deducted at Source (TDS). This concept becomes particularly important when withdrawing money from your Employee Provident Fund (EPF) account. Let us understand TDS on EPF withdrawal:

Section 192A of the Income Tax Act regulates the deduction of TDS on withdrawals from the Employee Provident Fund (EPF). It requires that TDS be deducted at the time of EPF withdrawal. This means that when you withdraw funds from your EPF account, a specific percentage of the total amount will be withheld as TDS before the remaining balance is paid to you.

TDS will be deducted in the following scenarios:

- If an employee withdraws an amount equal to or exceeding Rs 30,000 with less than 5 years of service:

a) TDS will be deducted at 10 per cent if Form 15G/15H is not submitted, provided the employee has submitted their PAN.

b) TDS will be deducted at the maximum marginal rate (34.608 per cent) if the employee fails to submit their PAN.

Members must quote PAN in Form No.- 15G / 15H and in Form No. 19

No TDS is applicable in the following cases:

- Transfer of Provident Fund (PF) from one account to another.

- Termination of service due to the member's ill health, discontinuation of business by the employer, completion of a project, or any other reason beyond the member's control.

- Withdrawal of PF after completing five years of service.

- If the PF withdrawal amount is less than Rs 30,000, and the member has served for less than five years.

- If the employee withdraws Rs 30,000 or more, with less than five years of service, but submits Form 15G/15H along with their PAN.

Starting FY 21-22, interest on an employee's contribution to an EPF account above Rs 2.5 lakh during the financial year is taxable in the hands of the employee. This interest is also subject to TDS under section 194A,” said Manikandan S, tax expert at Cleartax.

Documents required to withdraw PF online

Universal Account Number (UAN)

Bank account information of the EPF subscriber

Identity and address proof

Cancelled check with IFSC code and account number

[The Business Standard]