Taxability of Employees Provident Fund withdrawn of Accumulated Balance before 5 years & International Employees Exemption
Provident fund is a kind of security fund in which the contribution is made for the employee’s welfare by the employee and the employer. Under the Employees Provident Fund Act, 1952, certain specified employers are required to comply with the Employees Provident Fund Scheme, 1952. However, these employers are also permitted to establish and manage their own private provident fund (PF) scheme subject to fulfilment of certain conditions. This provident fund scheme is known as Recognised Provident Fund (RPF) under the Act.
Under the existing provisions of rule 8 of Schedule IV, Part A, the withdrawal of accumulated balance by an employee from the RPF is exempt in the hands of employee in the following situations –
| ♠ If the employee has rendered continuous service with his employer for a period of 5 years or more. 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 provident fund and the provident fund balance of the employee was transferred by him to the current employer. |
| ♠ If the employee has been terminated because of certain reasons which are beyond his control (e.g., ill health of the employee, discontinuation of business by employer, completion of project for which the employee was employed, etc.). |
| ♠ If the employee has resigned before completion of 5 years but he joins another employer (who maintains recognized provident fund and provident fund money with the current employer is transferred to the new employer). |
| ♠ If the entire balance standing to the credit of the employee is transferred to his account under a Pension scheme referred to in Sec 80CCD & Notified by Central Govt. (i.e. NPS) |
If the employee makes withdrawal before continuous service of 5 years (other than the cases given above), such withdrawal shall be treated as unrecognized provident fund withdrawal. Unrecognized provident fund withdrawal (excluding employee’s contribution) is taxable (hereinafter referred to as “taxable premature withdrawal”).
The Finance Act, 2015 had Inserted a new section 192A regarding the TDS (Tax Deduction at Source) on payment of accumulated provident fund balance due to an employee, the provision shall take effect from 01.06.2015.
Who is liable for TDS deduction – Tax is to be deducted by the trustees of Employees’ Provident Fund Scheme, 1952 or any other person authorised under the scheme to make payment of accumulated sum to employees.
Which amount is subject to tax deduction – Tax is deductible from “taxable premature withdrawal”. In other words, tax is deductible from accumulated lump sum payment (at the time of retirement or at the time of leaving job) in case the employee has not rendered continuous service of 5 years (and he does not fall in any of the 4 cases given in above). Out of the lump sum payment, only amount includible in the total income of the employee (i.e. Employer’s Contribution & Interest on Employers & Employee Contribution) is subject to tax deduction at source. (refer example given below in conclusion). As the employee’s contribution is not income it is set aside amount of Contribution to PF. Also, Employee’s Contribution is considered as deduction u/s 80C & when EPF is withdrawn before 5 years of service then such deductions are withdrawn & TDS is taken care by Section 192(4) which says tax on disallowance of 80C of previous year should be deducted in the year in which EPF is withdrawn.
Definition as per Part A of Forth Schedule of Income Tax Act of “accumulated balance due to an employee” means the balance to his credit, or such portion thereof as may be claimable by him under the regulations of the fund, on the day he ceases to be an employee of the employer maintaining the fund
Time of tax deduction – Tax is deductible at the time of payment.
Rate of TDS – Tax is deductible under section 192A at the rate of 10 per cent of “taxable premature withdrawal”.
If PAN of the recipient is not available, tax is deductible at the maximum marginal rate of tax.
What is threshold limit – Tax is not deductible if “taxable premature withdrawal” is less than Rs. 50,000.
No deduction of tax at source – No deduction of tax is to be made if the recipient of income furnishes a declaration in writing in duplicate in prescribed form [Form No. 15G].
Foreign nationals exempt from Provident Fund subject to specific condition
Foreign nationals i.e. International Workers (IWs) working in establishments in India to which Employees’ Provident Fund (PF) regulations apply are required to contribute to the PF except those who have been specifically exempted under the regulations. There is an exception to the Employees from countries with whom India has signed Social Security Agreements (SSA), contributing towards the social security of their home country and holding Certificate of Coverage (COC) from their home country will not be required to contribute towards the Indian social security. As per the provisions of the PF scheme, both employer as well as employee will contribute 12% of monthly pay (as defined). Salary will include the total salary whether received in India or abroad.
Conclusion
1. No TDS in respect of the following cases: –
- Transfer of PF from one account to another PF account.
- If Entire Balance of PF is transferred by employee to his NPS account
- Termination of service due to Ill health of member /discontinuation of Business by employer/completion of project/other cause beyond the control of member.
- If employee withdraws PF after a period of five year.
- If PF payment is less than Rs. 50,000/-( w.e.f. 01/06/2016 earlier it was Rs 30,000/-) but the member has rendered service of less than 5 years.
- If employee withdraws amount more than or equal to Rs. 50,000/-, with service less than 5 years but submits Form 15G/15H along with their PAN.
2. No EPF deduction in case IWs working in India having Social security coverage in their home country & having SSA with India.
Example :- Mr. A join Company X on April 16, 2015 (salary being Rs 1,00,000/- per month. X Company contributed 12% of Salary towards recognised provident fund. Mr. A also makes same contributions. Mr A makes Rs 1,20,000/- towards LIC u/s 80C & Medical Premium Rs 10000/- u/s 80D. Mr A resigns on 31st December 2016.
Accumulated Balance on PF of Mr A is Rs 5,30,000/- (i.e. Contribution of X Company 2,40,000/- Interest thereon Rs 25,000/- Contribution of A 2,40,000/- interest thereon Rs 25,000/-). The Accumulated Balance is paid on 10th January 2017. Lets determine the amount of TDS working & take two situations
Situation 1:- PF is managed by PF Commissioner under EPF Scheme, 1952
Situation 2:- Company X has taken exemption u/s 17 & PF is managed by its PF trust through there own.
Assumptions below
1. Mr A is not employed by any other person previously & doesn’t have any PF account before this.
2. Mr A is not joining any company after resignation.
3. The service of A is not terminated because of reasons beyond his control.
4. Mr A has not transferred entire Balance of PF to NPS account before 31 Dec 2016
Situation 1
Calculation of TDS
| TDS by Employer under section 192 | TDS by EPFS under 192A | |
| Salary (Rs 100000x9months) | 9,00,000 | 0 |
| Any other Income
EPF Withdrawn (240000+25000+25000) |
– | 2,90,000 |
| Gross Total Income | 9,00,000 | 2,90,000 |
| Deduction u/s | ||
| 80C-LIC | 1,20,000 | |
| 80D-Medical Premium | 10,000 | |
| Income Subject to TDS | 7,70,000 | 2,90,000 |
| Tax on Regular rate on 7,70,000 | 81,370 | |
| Tax on withdrawn of Deduction u/s 80C for the earlier year as calculated below | 8,240 | |
| Tax to be deducted(*290000×10%) | 89,610 | 29000* |
| Tax on withdrawn of Deduction u/s 80C for the earlier year | ||
| Tax Liability as originally calculated considering Deduction u/s 80C | Recomputation of Tax liability (Considering EPF as unrecognised EPF i.e. not allowing 80C) | |
| Salary (Rs 100000×11.5 months) | 11,50,000 | 11,50,000 |
| Any other Income | – | – |
| Gross Total Income | 11,50,000 | 11,50,000 |
| Deduction u/s | ||
| 80C-LIC | 1,20,000 | 1,20,000 |
| 80C-EPF (total Rs 1,38,000 being 12% of Rs 11,50,000/- but maximum upto Rs 1,50,000/- in 80C) | 1,38,000 | Nil
(due to EPF premature withdrawn) |
| 80D-Medical Premium | 10,000 | 10,000 |
| Income Subject to TDS | 9,90,000 | 10,20,000 |
| Tax on Regular rate on 9,90,000 | 1,26,690 | 1,34,930 |
| Difference in Tax of Rs 8,240 (134930-126690) will be recovered by way of TDS under section 192 in the FY 2016-17 | ||
Situation 2:- Under this case PF is maintained by Company. TDS under 192A is not applicable. TDS under 192 by the employer company will be deducted as follows
Calculation of TDS
| TDS by Employer under section 192 | |
| Salary (Rs 100000x9months) | 9,00,000 |
| EPF Withdrawn (Employer’s Contribution) | 2,40,000 |
| Interest on EPF (Employer’s) | 25,000 |
| Any other Income
Interest on EPF employees part 25000 |
25,000 |
| Gross Total Income | 11,90,000 |
| Deduction u/s | |
| 80C-LIC | 1,20,000 |
| 80D-Medical Premium | 10,000 |
| Income Subject to TDS | 10,60,000 |
| Tax on Regular rate on 10,60,000 | 1,47,290 |
| Tax on withdrawn of Deduction u/s 80C for the earlier year as calculated below | 8,240 |
| Tax to be deducted | 1,55,530 |
Author can be reached at E-mail:- jugal.patel@samp.co.in M:- +91 9711118662
Author Bio
My son got epf withdrawl amount of rs 5.81 lacs after TDS of 10 percent shown in section 192A in 26AS in the financia year 2021-22. He left the job before 5 years service and went abroad -NRI and working there. Has another income of Rs 81000 /as interrst from banks-TDS @30 percent deducted and appearin in 26AS.Kindly guide where should he show the amount of epf withdrwan in income tax rerurn for ass year 2022-23.He is filing his ITRS regularly. NRI.He claimed exemtions of EPF emloyee deductions us 80 C of rs 70000/ and rs 150000/ in fFinancial years 2014-15 and 2015-16. Thanks.Raj kumar Jindal
Sir,
My son has withdrawn EPF within 5 years as he was unemployed for some time. An amount of Rs384000 appears in 26AS with TDS of Rs38400. Where to show the income of Rs384000 in ITR1
Sir my question is that, i had income u/s 192a 112000 showing in 26as on which tds is not deducted now how do i treat this income in itr?
Sir,
Let’s say xyz limited is a company and file separate balance sheet and it have exempted pf trust too, and pf trust too file separate balance sheet.
Now tds under section 192 need to be deducted by xyz limited or exempted trust.
Pls advice
Actually the Employees Contribution is withdrawn for FY 2015-16. That is why we are calculating the impact of TDS when the deduction which was allowed in FY 1516 is withdrawn due to premature withdrawn of EPF as per section 192(4). So the calculation showing Tax difference of Rs 8,240/- is given in Situation 1. we have shown the calculation for same in situation 2 as the calculation is same.
Otherwise salary is same in situation 1 & 2.
You may to reconsider all the examples, as the date of joining is 16.4.2015 and date of resignation is 31.12.2016. In one example you are calculating 9 month and in another 11.5 months. His total service is 20.5 months.