In order to discourage premature withdrawals from employee provident fund, government has introduced section 192A. 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period of service is less than 5 years, then entire withdrawals will be taxable in the financial year in which such withdrawn has taken place.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.
Rate of TDS and time of deduction
Under section 192A, tax has to be deducted at the rate of 10% on the amount withdrawn from employee provident fund account.
If permanent account number or PAN of the employee or assessee has not been provided, then TDS amount has to be deducted at the maximum marginal rate, which is 34.608%.
When Tax not to be deducted
No tax should be deducted out of withdrawals from employee provident fund if the amount withdrawn is less than equal to Rs. 50,000.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;
- If EPF balance transferred from one account to another EPF account. This generally happened due to change of employer.
- Balance in Employee Provident Fund account is withdrawn because of termination of employment due to ill health, discontinue of business by employer, completion of projects or other cases beyond the control of assessee.
- Employee has withdrawn EPF balance after a continuous service of 5 years.
- If EPF withdrawals is less than Rs. 50,000 and employer has rendered less than 5 years of continuous services.
- In cases where employee has submitted form 15G or 15H even though amount withdrawn from EPF account is equal to or more than Rs. 50,000 and services rendered to employer is less than 5 years.