The provident fund accumulation is exempt from tax , but those who have not completed five years of service, the withdrawal of provident fund is not tax free unless certain special circumstances are involved in his or her case. Now whether the amount was taxable or not , the provision under section 192A inserted in the Income Tax Act and effective from 01/06/2015 , fixes responsibility of deduction of tax at source on amount of premature withdrawal by an employee. So , now when you go for withdrawal , this issue will affect and the PF trustees will ask for your PAN and other details in Form 19 for EPF withdrawal. Hare are five circumstances under which you may not have to suffer from TDS u/s 192A of the Income Tax Act.
1. Rendered five years of continuous service.
Rule 8 of Fourth Schedule of Income Tax Act provides that if the service of employee is five years or more , withdrawal of the PF is exempt from tax . For counting 5 years , Rule 8 provides explanation that if the PF withdrawal amount contains any portion of PF transferred from earlier employer , such period of employment with his former employer shall also be added or counted for the purpose of determination of five years.
2. No TDS if PF is Merely Transferred to Another PF account
In case of employment change or various reason, the PF account may change. So the accumulated balance of PF money is transferred to the new account. In that case , the withdrawal is not considered income , as such no TDS is required.
3. No Continuous service due to Ill Health or Other Reason
Rule 8 provides that rule of 5 years of continuous service will not be applicable in case an employee could not complete for following reasons
- 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
In this case also , the period of service with past employer shall be computed.
[infobox style=”alert-success”]For example , say a Mr X worked for two years with an employer and his PF balance was transferred to new account related to to his employment with M/s ABC . After two months , the services of Mr X was terminated by M/s ABC on ground of health.
When Mr X applies for the withdrawal of PF , TDS can not be deducted because such withdrawal is excluded from total income as per Rule 8 of Fourth Schedule of I.T.Act.. [/infobox]
4. Submitted Declaration in Form 15G or 15H
As you already know that declaration in Form 15G or 15H are for preventing TDS in certain circumstances which has been explained in a number of posts on this site. You can watch this video tutorial on Form 15G or 15H .
So , if your total income is below exemption limit in the year you are withdrawing PF accumulated balance. Please note that the PF withdrawal amount , you are applying to withdraw should also be included while computing total income for the year, you can submit the Form 15G or 15H ( Sr, Citizen.)
5. Withdrawal Amount is below Rs 50,000
The basic exemption given in section 192A of the Income Tax Act is
Rs 30,000, Rs 50,000 from 01/06/2016 .