1. Applicability of Employees Provident Fund Scheme
a. As per section 1 read with section 6 of The Employees Provident Funds and Miscellaneous Provisions Act, 1952, an employer of establishment including factory employing 20 or more persons shall required to contribute 12 percent of the basic wages [including dearness allowance and retaining allowance (if any)] to the fund and the employee contribution shall be equal to the contribution payable by the employer.
b. As per definition contained in The Employees Provident Funds Scheme, 1952 of excluded employees, an employee whose pay [pay includes basic with dearness allowance, retaining allowance (if any) and cash value of food concessions admissible thereon] at the time he is otherwise entitled to become member of the fund, exceeds Rs. 15,000 per month means if the employees pay exceeds the amount, then they are excluded from the scheme.
c. As per sec 6A of The Employees Provident Funds and Miscellaneous Provisions Act, 1952, not exceeding 8.33 percent of the basic wages of the employee shall be contributed to Employee Pension Scheme from the employer contribution.
d. The balance amount contributed by the employer is transferred to the employees provident fund i.e. 3.67 percent of the basic wages of the employee.
2. Withdrawal of Recognised Provident Fund not liable to Tax Deduction at Source [Rule 8 of Part A (Recognised Provident Fund) of the Fourth Schedule to Income-tax Act] – In the following cases, the accumulated balance due and becoming payable to an employee participating in a recognised provident fund shall be excluded for the purpose of computation of total Income and which is exempt under section 10(12) of Income-tax Act –
a. if he has rendered continuous service with his employer for a period of five years or more; or
b. if, though he has not rendered such continuous service, the service has been terminated by reason of the employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee; or
c. if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer; or
d. if the entire balance standing to the credit of the employee is transferred to his account under a pension scheme (National Pension Scheme) referred to section 80CCD of Income-tax Act and notified by the Central Government.
3. Withdrawal of Recognised Provident Fund liable to Tax Deduction at Source – In case the accumulated balance in recognised provident fund becomes taxable at the time of withdrawal due to amounts withdrawn before completing five years of continuous service and not falling under the conditions specified under rule 8 (supra), the tax payable in each of the years would be computed as if the fund had been an Unrecognised Provident Fund and the difference in tax would be payable by the employee. The following amounts are included in total income –
a. The contribution made by the employer which has not been included in salary by virture of section 17 of the Income-tax Act;
b. The entire Interest earned on both contributions (employer as well as employee) which has not been included in salary by virtue of section 17;
c. The contribution made by the employee which has been claimed as deduction under section 80C of Income-tax Act at the time of contribution by virtue of rule 9 of Part A of Fourth Schedule to Income-tax Act; and
d. The entire amount of pension withdrawn.
4. Contribution to Employees Provident Fund included for the purpose of Salary under section 17 of Income-tax Act
a. The entire amount contributed by your employer to the extent it exceeds Rs. 7,50,000 in a previous year as per section 17(2)(vii) of Income-tax Act shall be included as perquisites. The said amendment has been made by Finance Act 2020 by capping the upper limit for taxability of employer contribution which is applicable from 1st April 2021 relating to Assessment Year 2021-22.
b. As per section 17(2)(viia), the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year which relates to contribution referred to in section 17(2)(vii) (supra) which is included in total Income under the said sub-clause in any previous year computed in such manner as may be prescribed. The said amendment has been made by Finance Act 2020 which is applicable from 1st April 2021 relating to Assessment Year 2021-22.
5. Tax Deduction at Source (TDS) under Income-tax Act in relation to withdrawal from Employees Provident Fund
a. As per section 192A of the Income-tax Act, in case where the accumulated balance due to an employee participating in a recognised provident fund is included in his total Income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, the TDS is deducted at the rate of 10 percent at the time of payment of accumulated balance due to the employee.
b. No TDS shall be deducted in case the amount of such payment is less than Rs. 50,000.
c. TDS is deducted at maximum marginal rate if the Permanent Account Number (PAN) is not furnished to the person responsible for deduction.
d. As per section 197(1A) of the Income-tax Act, no TDS will be deducted under section 192A if the person (not being a company or a firm) furnishes to the person responsible for paying the amount a declaration in Form 15G declaring that the tax on his estimated total Income of the previous year in which such Income is to be included in computing his total Income would be NIL.
e. As per section 197(1C) of the Income-tax Act, no TDS will be deducted under section 192A if the person being an Individual resident in India, who is of the age of 60 years or more at any time during the previous year furnishes to the person responsible for paying the amount a declaration in Form 15H declaring that the tax on his estimated total Income of the previous year in which such Income is to be included in computing his total Income would be NIL.