Are you planning to withdraw PF? Be aware of its taxation provisions before you withdraw it, so that you could do tax planning for that. It may also attract TDS. Find here complete information on TDS on PF withdrawal and its taxation.
Provident fund (PF) governs by Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
In provident fund both employer and employee deposit certain percentage of amount each month.
An employee can withdraw the amount accumulated in his PF account for various reasons. The amount so withdrawn may attract TDS.
Section 192A of Income Tax Act deals with TDS on PF withdrawal.
As per this section where any payment made to a person for his accumulated PF balance which is taxable (includible in total income) shall be subject to TDS.
Rule 8 of Part A of the Fourth Schedule states that in below mentioned cases accumulated balance is not taxable (not included in total income).
- When the person has completed continuous 5 years of service
- When 5 years of service is not completed due to the reason of employees ill heath, discontinuation of employer business or due to any reason beyond the control of employee.
- When accumulated balance is transferred to any other recognized fund maintained by new employer.
So except in above three cases, all PF withdrawal will be taxable and subject to TDS u/s 192A
Rate of TDS on PF withdrawal
As per section 192A TDS will be deducted @10% on withdrawal amount.
If the employee is not able to furnish his PAN detail then TDS will be deducted @30%
Limit of TDS on PF withdrawal
As per section 192A, no TDS will be deducted if the amount withdrawn is less than Rs. 50,000.
Example : Employee Mr.A is worked in ABC Ltd. for 4 years, after if withdraws his P.F then TDS will be deducted as the amount is withdrawn within 5 years.
Important points to Note.
- Accumulated amount include both employee & employer contribution including any interest earned thereon.
- If PF is withdrawn within 5 years & less than Rs. 50,000. Then No TDS will be deducted but he has to furnish this in his Income tax Return.
- If PF is withdrawn within 5 years & more than Rs. 50,000, then TDS will be deducted @10% and also need to furnish in income tax return.
- If the PF. Is withdrawn after 5 years tenure the entire amount will be exempt from TDS and not taxable.
- If the PF account is transferred from one employer to another then it does not attracts TDS liability.
- PF withdrawn will be taxable under the head “income from other source”.
E.g: Employee Mr. A has worked in ABC ltd. for 4 years & after that he has withdrawn P.F of Rs. 50,000 then TDS will not be deducted as the amount is withdrawn within 5 years & Amount is less than Rs. 50,000.
E.g: Employee Mr. A has worked in ABC ltd. for 4 years & after that he has withdrawn P.F of Rs. 70,000 then TDS will be deducted @ 10% as the amount is withdrawn within 5 years & Amount is more than Rs. 50,000.
E.g: Employee Mr. A has worked in ABC ltd. for 6 years & after that he has withdrawn P.F of Rs. 70,000 then TDS will not be deducted as the amount is withdrawn after 5 years .
E.g: Employee Mr. A has worked in ABC ltd. for 4 years & after that he was was hospitalized with ill health & due to this his job was terminated after which he withdrawn his entire P.F of Rs. 70,000 then TDS will be not deducted as the withdrawal will be exempt from TDS as the situation was not in control of the employee.