Deduction of TDS on Withdrawal from PF
The section 192A of the Indian Income Tax Act deals with tax deducted at source on PF withdrawals. This is a new section recently in the existing Income Tax Act recently by the government of India as per the recommendations made in the Finance Act 2015. This new provision has come into effect from 01.06.2015. The section 192A comes right after the section 192 of the Indian Income-tax Act, 1961.
Who is responsible to deduct tax:
The trustees of the Employees’ Provident Fund Scheme, 1952, framed u/s 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 or any person authorised under the scheme to make payment of accumulated balance due to employees.
When to Deduct TDS under Section 192A?
At the time of making of payment.
Which amount is subject to tax deduction
a. Tax is deductible from accumulated lump sum payment when the employee has not rendered continuous service of 5 years (other than the cases of termination due to ill health, contraction or discontinuance of business, cessation of employment etc.). RPF is exempt in the hands of the employee 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.
b. Out of the lump sum payment, tax deduction shall be made on that portion of payment which is includible in the total income of the employee. Thus, tax deduction shall be made as under:-
| Component of lump sum payment | Is this component taxable in the hands of employee not completing continuous 5 years of service? | Is it subject to TDS if other conditions of section 192A are satisfied? |
| Employer’s Contribution | Taxable under head “Salary” | Subject to TDS |
| Interest on Employer’s Contribution | Taxable under head “Salary” | Subject to TDS |
| Employee’s Contribution | Not Taxable | No TDS required |
| Interest on Employee’s Contribution | Taxable under head “Other Sources” | Subject to TDS |
A Recognised provident fund shall be exempted:
a. if he has rendered continuous service with his employer for a period of 5 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.
Taxpoint: If the accumulated balance paid to the assessee is exempt then tax is not required to be deducted.
Rate of TDS: 10%
Any person entitled to receive any amount on which tax is deductible shall furnish his Permanent Account Number (PAN) to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.
When TDS is not applicable: Aggregate amount of such payment to the payee is less than ` 50,000.