Withdrawal from Provident Fund Taxable?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Gourav Shyamsukha asked over 3 years ago

Is withdrawal from Provident Fund taxable? or any condition for the same ?

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8 Answers
Open uri20170510 32134 1c996lj?1494421732 Anil answered over 3 years ago

Withdrawal from Provident Fund (PF) Account before Completion of Five years taxable? Withdrawal of Provident Fund may attract Income Tax. The Income Tax Department recently told EPFO (Employees Provident Fund Organisation) to deduct Tax (TDS) from the withdrawal amount, if the withdrawal happened before completing five years of subscription. Tax officials have cited a rule in the 1961 Income-Tax Act that taxes PF withdrawals by employees before completing five years of contributions into the EPF is taxable. In most cases, the accumulated PF balance is withdrawn at the time of retirement, and therefore, not taxable in the hands of the individual. However, in certain cases like change in employment, an individual may even withdraw the PF balance earlier. The point one needs to remember is that the amount received from such PF is not exempt from tax in all cases. Only under the circumstances listed below will the amount withdrawn from PF be eligible for such exemption from tax. If the employee has rendered continuous service with the employer for five years or more. Again, if the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period. If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt. Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer. In short, where the PF amount is withdrawn before five years of continuous service, it may be taxable in the hands of the individual as if the fund was not recognised from the start of the contributions. In such a case, payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 SNEHAL BHATKAR answered over 3 years ago

Dear All Withdrawal of Provident Fund may attract Income Tax. The Income Tax Department recently told EPFO (Employees Provident Fund Organisation) to deduct Tax (TDS) from the withdrawal amount, if the withdrawal happened before completing five years of subscription. Tax officials have cited a rule in the 1961 Income-Tax Act that taxes PF withdrawals by employees before completing five years of contributions into the EPF is taxable. In most cases, the accumulated PF balance is withdrawn at the time of retirement, and therefore, not taxable in the hands of the individual. However, in certain cases like change in employment, an individual may even withdraw the PF balance earlier. The point one needs to remember is that the amount received from such PF is not exempt from tax in all cases. Only under the circumstances listed below will the amount withdrawn from PF be eligible for such exemption from tax. If the employee has rendered continuous service with the employer for five years or more. Again, if the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period. If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt. Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer. In short, where the PF amount is withdrawn before five years of continuous service, it may be taxable in the hands of the individual as if the fund was not recognised from the start of the contributions. In such a case, payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier). Thanks

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Open uri20170510 32134 191jpz9?1494421696 Lokesh answered over 3 years ago

Dear Gourav, Please note - 1. Withdrawl from PF is only taxable if you withdraw before completion of 5 years of your continuous service. 2. If the reason of discontinuous of job was due to illness and same was intimated to pf department by your employer, then there will be no tax in effect. * Please note for continuous service, service provided of previous employer will also be calculated, provided the amount in old PF has been transferred to new PF account. Regards ! Lokesh Garg !

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 nayan answered over 3 years ago

Hello dear, Your questions about the taxability of the withdrawl from PROVIDENT FUND ACCOUNT. As per the FINANCE ACT 2015 the withdrawl from the provident fund account is taxable from 01/June/2015 if following condition is setisfied:- - employee has not completed total 5 YEARS OF SERVICE AS A EMPLOYEE AND - AMOUNT WOTHDRAW IS MORE THEN RS 30000/- Rate of tax is 30% Of the amount withdraw

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Open uri20170510 32134 ng4pv?1494421709 SONIYA answered over 3 years ago

A new provision by the finance Act 2015 has been inserted for deduction of tax at the rate of 10% on pre-mature taxable withdrawal from EPFS. **Highlights of amendment:** 1. For benefiting employees having taxable income below the taxable limit, a threshold limit of Rs.30,000/- for applicability of this proposed provision is provided in the act. 2. For reducing the compliance burden of employees further, the facility of filing self-declaration for non-deduction of tax under section 197A of the Act shall be extended to the employees receiving pre-mature withdrawal. 3. An employee can give a declaration in Form No. 15G to the effect that his total income including taxable pre-mature withdrawal from EPFS does not exceed the maximum amount not chargeable to tax and on furnishing of such declaration, no tax will be deducted by the trustee of EPFS while making the payment to such employee. 4. Similar facility of filing self-declaration in Form No. 15H for non-deduction of tax under section 197A of the Act shall also be extended to the senior citizen employees receiving pre-mature withdrawal. 5.However, some employees making pre-mature withdrawal may be paying tax at higher slab rates (20% or 30%). Therefore, the shortfall in the actual tax liability vis-à-vis TDS is required to be paid by these employees either by requesting their new employer or through payment of advance tax / self-assessment tax. 5. For ensuring the payment of balance tax by these employees, furnishing of valid Permanent Account Number (PAN) by them to the EPFS is a prerequisite. 6. In order to ensure the collection of balance tax by employees falling under 20% or 30% slab rate, it is also proposed that non-furnishing of PAN to the EPFS for receiving these payments would attract deduction of tax at the maximum marginal rate. 7. These amendments will take effect from 1st June, 2015. **Extracts of amendments** 41. After section 192 of the Income-tax Act, the following section shall be inserted with effect from the 1st day of June, 2015, namely:— “192A. Notwithstanding anything contained in this Act, the trustees of the Employees’ Provident Fund Scheme, 1952, framed under section 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, shall, in a case where the accumulated balance due to an employee participating in a recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of the accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent.: Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees: Provided further that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.

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Open uri20170510 32134 1vcte5g?1494421820 Rishabh Sitani answered over 3 years ago

HELLO, No,withdrawal from Provident Fund is not taxable.Provident fund can be terminated at anytime after the end of 15 years from the date of the opening of the provident fund account.For closure of the provident fund account and money withdrawal from Provident Fund,an individual needs to give an application in form c and he is also required to produce his provident fund account passbook so that he can withdraw the money from his provident fund account.If the account holder wants to continue his provident fund account even after the end of 15 years,he can apply for an extension in such a case for a period of 5 years. For this,he needs to withdraw some amount from his ongoing provident fund accountant and then apply for above with the help of form c.It should be kept in mind that total withdrawal from Provident Fund account should not exceed 60% during those 5 years which was given as an extension to him.Provident fund is being locked for 5 years which means during this time,no amount of money can be withdrawn from that account.After the end of 5 years, a person can do withdrawal from Provident Fund account but such withdrawal should not exceed 50%. THANK YOU, REGARDS, RISHABH SITANI.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Prabhash answered over 3 years ago

Hi Gourav, Instances of tax on withdrawal from provident Fund:- The Income Tax Department recently told EPFO (Employees Provident Fund Organization) to deduct Tax (TDS) from the withdrawal amount, if the withdrawal happened before completing five years of subscription. ****PF withdrawals by employees before completing five years of contributions into the EPF is taxable.**** To discourage premature withdrawal of provident fund a new provision in his Finance Act 2015 that allows for tax deduction at source (TDS) on provident fund withdrawal. Under the new inserted Section 192A of Income Tax Act, provident fund withdrawal before five years of continuous service will attract a TDS (tax deducted at source) of 10%.The new provision of TDS deduction, however, will not be applicable if the provident fund withdrawal is less than Rs. 30,000

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Sumeet Agrawal answered over 3 years ago

If Provident fund is unrecognised, it is always taxable. In case of recognised Provident fund, Withdrawal from Provident fund is taxable only if Individual has not rendered continous service of Five Years. In case of change in job before rendering five year service, then PF balance transfer to new employer is not taxable whereas Withdrewal from Provident Fund is taxable.

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