Section 192A of Income Tax Act

The Employees Provident Fund is a savings scheme introduced to mobilise money and build a retirement corpus. While it allows individuals to save money, the same is taxed under Section 192A of Income Tax Act.

Nonetheless, there are certain deductions that individuals can avail of to maximise their benefits from EPF. To streamline the process in a hassle-free manner, individuals need to find out more about the provisions under the purview of this tax regime. 

What is Section 192 of the Income Tax Act?

Section 192A of Income Tax Act is concerned with the TDS on premature withdrawal from EPF. It directs the Employees' Provident Fund Scheme, 1952 to deduct TDS when employees do not meet the provisions mentioned under Rule 8, Part A of the Fourth Schedule. 

One must note that this provision was recently added to the Income Tax Act, 1961 under the purview of the Finance Act, 2015. Per this provision, tax is essentially deducted during the time of payment.

Entrusted deductors are required to deposit TDS with the government within a week of the following month in which tax is deducted at source. However, when it comes to TDS deducted in March, it is to be deposited either on or before the 30th of April. 

Notably, TDS deductors have to file quarterly returns through Form 26Q on these dates –

TDS Rate on PF Withdrawal 

Under TDS Section 192A the entrusted entity deducts tax at source at the rate of 10%. However, one must note that if an employee is unable to provide PAN, then the entrusted entity deducts TDS at the marginal rate, i.e. 34.608%.

Besides learning the TDS rate on PF withdrawal, individuals need to find out about the deduction limit to avail of the same. 

TDS Deduction Limit

TDS is deducted when the total amount of a lump sum tax component is more than Rs. 50000. Nonetheless, there are a few circumstances during which TDS is not deducted under Section 192A TDS. Entities must find out about the exceptions in advance to account for them.

Exemptions Under Section 192A

These pointers enumerate the circumstances under which tax is not deducted under Section 192A of Income Tax Act.

• The total EPF withdrawal amount is less than Rs. 50000.
• The EPF withdrawal is made after a continuous service of at least 5 years.
• In the event of a job change, the EPF amount has been transferred from one account to another.
• In case of employment termination because of the completion of a project for which the concerned individual was employed. Other than that, termination of employment, discontinuation of an employer's venture, etc. are among other reasons. 
• When employees have submitted Form 15G or Form 15H in addition to PAN.

One must note that PAN submission is not mandatory when the PF account holder has served more than 5 years in an organisation. This further eliminates the need to submit Form 15G or Form 15H.

Also, PF holders who had been terminated from their service due to ill health or discontinuation of business or completion of their project, do not have to submit PAN. It is because their earnings will not be subject to TDS. 

Deduction of TDS on Withdrawal from Provident Fund

According to the provisions included in 192A TDS Section, the tax will be deducted at source if the total balance exceeds Rs. 30000 at the time of withdrawal. The same will also be applicable if the account holder has been associated with an organisation for less than 5 years. 

TDS will be deducted on the provident fund balance when paid out to the concerned employee. 

These pointers below highlight the situations under which tax will be deducted at source on provident fund withdrawals -

• When an individual decided to transfer his/her provident fund balance from one PF account to another. Generally, such a situation occurs when the individual changes his/her job. 
• In case the individual's service gets terminated on account of - ill-health, completion of project and discontinuation of the employer's business venture, among others.
• In case an individual with a PF account decides to withdraw from it after 5 years of continuous service without changing jobs in between. 

Rate of TDS on Provident Fund

According to the Indian Income Tax Act of 1961, the tax will be deducted at the source at a rate of 10%. This rate will be effective only after the PAN card has been submitted. No tax will be deducted at source if a PF account holder files Form 15G or 15H.

When a PF account user has worked for an organisation for more than five years, the submission of a PAN (Permanent Account Number) is not required. In this scenario, he or she is exempt from submitting Forms 15G and 15H. Furthermore, PF account holders whose employment was terminated due to illness or any other reason, such as the termination of business or project completion, are not required to produce PAN. They will not be taxed at the source.