TDS on EPF Withdrawal: TDS on EPF Withdrawal refers to the tax deduction taken directly from the amount withdrawn from your Employees’ Provident Fund. The deducted amount varies based on factors like the withdrawal duration, amount, and whether PAN details are provided. Submitting Form 15G/15H or having income below the taxable limit can exempt you from TDS deduction on EPF withdrawals.
EPF is a way to save for retirement by putting a part of your salary into a special account. When you take money out later, you might have to pay tax on it. The new update says that if you don’t have a PAN card and take out money, the tax rate on that money is reduced from 30% to 20%. And the money you put into EPF helps in reducing the tax you pay.
It’s a savings scheme for employees where a part of their salary (12% from both employee and employer) is put into a retirement fund every month.
When you take money out from your EPF account (withdrawal), it might have tax implications.
Earlier, if someone didn’t have a PAN card (a unique ID for taxes), the tax rate on the money withdrawn from EPF was 30%.
But now, in the 2023 Budget Update, the tax rate has been reduced from 30% to 20% for non-PAN cases. So, if you withdraw money from EPF and don’t have a PAN card, you’ll now pay 20% tax instead of 30% on the part of the money that’s taxable.
In this article, we will discuss in detail TDS on EPF withdrawal, Save TDS on EPF withdrawal, and When TDS is deducted on EPF withdrawal.
TDS on EPF Withdrawal
- TDS is like a tax pre-payment taken from your EPF withdrawal if it happens before 5 years from when you opened your EPF account.
- Normally, if you take out money early, the government takes a bit of tax from it upfront, but there are ways to avoid this.
How to Save TDS on EPF Withdrawal?
You won’t have TDS deducted from your EPF withdrawal in these situations:
- If you’ve worked for 5 years or more before taking out the EPF money.
- If the EPF payment is less than Rs. 50,000, even if you’ve worked for less than 5 years.
- If you withdraw more than Rs. 50,000 with less than 5 years of service but submit Form 15G/15H along with your PAN card. These forms say you don’t need to pay tax or that your income is below taxable limits.
- When transferring money from one EPF account to another EPF account.
- If you leave your job because of health issues, the employer shuts down the business, a project ends, or any other reason beyond your control.
- To avoid TDS on EPF withdrawal, try to wait for 5 years from opening the account.
- If withdrawing before 5 years, you might not have TDS if the amount is less than Rs. 50,000, or if you submit the right forms stating you don’t need to pay tax.
In simpler terms, if you take out EPF money too soon, the government might take a bit of tax from it upfront. But if you’ve worked for at least 5 years or if your withdrawal amount is small, you might not have to pay this tax. Also, if you fill out specific forms or your situation fits certain conditions (like health issues or job changes), you might avoid this tax.
TDS on EPF Withdrawal in Different Scenario
Raj began contributing to his EPF account in April 2018. He plans to withdraw money from his EPF account in May 2022.
1. Scenario 1: Withdrawal after 5 Years of Service
– If Raj completes 5 years of service by April 2023 and then withdraws his EPF balance, there won’t be any TDS deducted, regardless of the withdrawal amount. This is because he waited for the 5-year mark.
2. Scenario 2: Withdrawal Before 5 Years with Different Conditions
– If Raj withdraws before completing 5 years of service (by April 2023) and his withdrawal amount is less than Rs. 50,000, there won’t be any TDS deducted. This exemption applies even if he hasn’t completed 5 years of service.
3. Scenario 3: Withdrawal Before 5 Years with Form Submission
– However, if Raj withdraws before 5 years and his withdrawal amount exceeds Rs. 50,000, and he has a PAN card, 10% TDS will be deducted. If he doesn’t have a PAN card, the TDS deducted will be 20%.
4. Scenario 4: Exceptions to TDS
– Additionally, if Raj leaves his job due to health issues, the company shuts down, a project ends, or other unforeseen reasons, and he withdraws his EPF, there won’t be any TDS deducted, regardless of the service duration.
So, in summary, Raj can avoid TDS on EPF withdrawal by waiting for 5 years of service, withdrawing an amount less than Rs. 50,000, or falling under exceptional situations, even if his service duration is less than 5 years. If he withdraws before 5 years and the amount exceeds Rs. 50,000, the TDS will be 10% if he has a PAN card, and 20% if he doesn’t have a PAN card.
Example: Suppose, Raj started contributing to his EPF account in April 2018. He decided to withdraw Rs. 1,00,000 from his EPF account before May 2022 and he has a PAN card.
In this case, even though Raj has a PAN card, because the withdrawal amount exceeds Rs. 50,000 and it’s before completing 5 years of service, 10% TDS will be deducted on the entire withdrawal amount of Rs. 1,00,000.
So, the Tax Deducted at Source (TDS) on Raj’s withdrawal of Rs. 1,00,000 would be 10% of Rs. 1,00,000, which equals Rs. 10,000. This Rs. 10,000 would be deducted as TDS from his EPF withdrawal amount of Rs. 1,00,000.
Tips: Ensure to provide your PAN to your employer; this allows for a smoother income tax refund process if your income falls below the taxable limit and TDS has been deducted. Failing to provide your PAN to your employer might pose challenges in receiving your TDS refund, as your PAN needs to be updated in the income tax department’s database.
Know about TDS liabilities.
— EPFO (@socialepfo) February 22, 2022
How to Save TDS on EPF Withdrawals?
To avoid TDS on EPF withdrawals, your income for the assessment year 2023-24 should be below Rs. 2,50,000, the taxable limit. If your income falls below this threshold, you can save TDS on EPF withdrawals, even if the withdrawal amount exceeds Rs. 50,000 or occurs before completing 5 years. To prevent this TDS deduction, you’ll need to complete and submit Form 15G/Form 15H.
Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) can be submitted if the tax calculated on your total income, which includes EPF withdrawal, is nil or falls below the taxable limit. When you submit Form 15G or Form 15H, TDS (Tax Deducted at Source) is not deducted from your EPF withdrawal. These forms declare that your total income is below the taxable limit, hence no tax is payable, ensuring TDS is not deducted on your EPF withdrawal.
Visit the official website of EPFO for more information – https://www.epfindia.gov.in/site_en/WhichClaimForm.php
How EPF Withdrawals are Taxed?
EPF withdrawals are taxed differently based on the components involved:
1. Your Contributions: The money you’ve put into your EPF account (your contributions) is not taxed when you withdraw it. However, if you’ve claimed tax deductions under section 80C for these contributions in earlier years, there might be additional tax implications as if you hadn’t claimed those deductions.
2. Interest on Your Contribution: The interest earned on your contributions is considered as income from other sources and is taxable.
3. Employer’s Contribution and Its Interest: The contributions made by your employer and the interest earned on their contributions are fully taxable. These are treated as part of your salary income for tax purposes. When TDS (Tax Deducted at Source) is deducted on this amount, you’ll see it reflected under the salary TDS section in Form 26AS (a statement showing tax-related information).
4. Relief Under Section 89(1): You can seek relief under section 89(1) for the taxation of these balances. This section allows for relief when there’s a disparity in tax payment due to arrears or additional income received in a particular year.