TDS on EPF Withdrawal with Tips to Avoid TDS

TDS upon withdrawal of EPF: This term refers to the tax deduction made from the sum taken out of the Employees’ Provident Fund. The difference in the amount deducted depends on factors like duration of withdrawal, the amount involved and whether PAN details have been provided or not. On EPF withdrawals, TDS deduction can be avoided by submitting Form 15G/15H or by having an income below taxable limit.

EPF is a retirement savings scheme where some part of your salary is put into a special account that you cannot touch until old age except under certain circumstances otherwise a tax penalty applies. In other words, when you take money out later on then there might be taxes levied upon it. These new updates say if someone doesn’t have PAN card but takes out cash, there will now only be taxed at 20% instead of 30%. Additionally, money which gets put into EPF helps with reducing taxes paid each year.

This is basically a scheme for employees who want to save for their future when they are no longer working by putting aside some percentage (12%) of their monthly earnings towards retirement fund and this would start reflecting in your pay slip within three months after joining according to law.

It has tax implications when one withdraws from the account (EPF) earlier than expected or even before attaining retirement age.

Previously those without PAN cards were charged at rates as high as 30%.

Earlier, if someone didn’t have a PAN card (a unique ID for taxes), the tax rate on the money withdrawn from EPF was 30%.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.

This article will look into details on TDS for EPF withdrawal, when it is deducted and how to save it.

Tax Deducted at Source (TDS) on EPF Withdrawal

If you close your EPF account before 5 years from the date of opening it; there will be a tax prepayment known as TDS.

Usually if one takes out money early enough, some governments take some taxes out of that cash but there are ways through which this can be avoided.

Basically, the government may tax you a little at first if you take out EPF money too early. But you could avoid paying this tax if you have worked for at least five years or if your withdrawal amount is small. Also, you may escape this tax if you fill out certain forms or fall under certain conditions (such as health issues or job changes).

But what happens when an employee takes out their retirement savings from Employee Provident Fund? Well, there are two types of taxes that will be applied to different situations.

One is TDS which stands for Tax Deducted at Source and other one is TCS which stands for Tax Collected at Source

TDS on EPF Withdrawal in Different Scenario

Raj started contributing to his EPF account in April 2018. He is planning 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, no TDS will be deducted irrespective of the withdrawal amount because he has completed the required number of service years.

2. Scenario 2: Withdrawal Before 5 Years with Different Conditions

If Raj withdraws before completion of 5 years (by April 2023) and the withdrawal amount is less than Rs.50,000 then no TDS will be deducted even though he hasn’t completed minimum service period i.e., five years.

3. Scenario 3: Withdrawal Before 5 Years with Form Submission

However, If Raj withdraws before completion of five years and his total withdrawal amount exceeds Rs.50,000 and he has PAN card then only there would be deduction of TDS @10%. In case if he doesn’t have PAN card then rate of TDS would increase to twice i.e., @20%.

4. Scenario 4: Exceptions to TDS

If Raj has left the job because of health issues, company shutdown, end of project or any other reasons beyond employee’s control and he is withdrawing his EPF then no TDS will be deducted irrespective of service years.

So in summary, Raj can avoid TDS on EPF withdrawal if he completes minimum five years of service, withdraws amount not exceeding Rs.50,000 or falls under exceptional situations. Even if his service period is less than five years.

And If he withdraws before five years and amount exceeds Rs.50,000 then TDS rate would be 10% when PAN card available with him otherwise it shall increase to 20%.

Example: Let’s say Raj started contributing towards his EPF account in April 2018. He decided to withdraw Rs.1,00,000 from his EPF account before May 2022 and he has PAN card.

So in this case what happens?

Because the withdrawal amount is more than Rs.50,000 and it’s before completion of five years i.e., minimum service period required for exemption from TDS deduction; even though he has PAN card but still there will be deduction @10% on entire withdrawal amount of one lakh rupees.

Therefore Tax Deducted at Source (TDS) on Raj’s Withdrawal =10/100×100000=Rs.10,000

Below Rs.2,50,000 that is the taxable limit of the assessment year 2023-24 should be your income. Even if the amount exceeds Rs.50000 or occurs before 5 years, still it can save TDS on EPF withdrawals when your income gets down below this bar. You will have to fill up Form 15G/Form 15H so as not to deduct this TDS.

Suppose tax calculated on total income including EPF withdrawal comes out to be nil or less than taxable limit then one can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens). If you give either Form it means TDS (Tax Deducted at Source) is not deducted from your EPF withdrawal. They state that my entire annual earnings fall short of being liable for taxation thus making no contribution towards revenue services in form of taxation refunds required against any future earnings until next fiscal year ends after which such receipts might become necessary once more with regard thereto; thereby ensuring such deductions aren’t made by them upon receiving my application form about withdrawing money saved under Employee Provident Fund Organization scheme during this financial period starting today till March.

Click here for more details – https://www.epfindia.gov.in/site_en/WhichClaimForm.php

How are EPF Withdrawals 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.

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