TDS of 10% applies to certain types of PF withdrawals effective 1 June

However, this will happen only if your accumulated PF balance is Rs.30,000/- or more and you withdraw it before five continuous years of service

While provident fund (PF) is an instrument meant to help a person save for the long term, it provides for premature partial or full withdrawal as well. One relevant rule regarding this is that if an individual withdraws money after at least five continuous years of employment and contribution to the PF account, the withdrawn amount is not taxed.

However, if the withdrawal is made before five continuous years, tax is deducted at source (TDS). Let’s see how this works.

TDS ON PF WITHDRAWAL

The amount that you withdraw is taxed either at the marginal rate or at the rate at which you pay income tax. From 1 June, if you withdraw from your PF amount, TDS will be deducted. However, this will happen only if your accumulated PF balance is Rs.30,000 or more and you withdraw it before five continuous years of service. Those who don’t fall under the taxable income can avoid TDS by submitting forms 15G or 15H.

WHAT ARE FORMS 15G, 15H?

These are self-declaration forms in which you can state that your total income is below the taxable limit and, therefore, you are not liable for TDS.

Form 15G is for individuals below 60 years of age having no taxable income, while form 15H is for senior citizens who are 60 years and above. You have to quote your Permanent Account Number (PAN). These forms are accepted in duplicate.

However, there are a few limitations. Forms 15G and 15H are not applicable if the amount of withdrawal is more than Rs.2.5 lakh and Rs.3 lakh, respectively for form 15G and 15H. 

If you don’t submit the applicable form, and only submit your PAN, then tax will be deducted at source at 10% if your PF withdrawal amount is Rs.30,000 or more with service of less than five years. In case you fail to submit PAN, TDS will be deducted at maximum marginal rate of 34.608%.

Under section 192A of the Income-tax Act, 1961, TDS is deductible at the time of payment. Submitting form 15G or 15H is a convenient approach for those who don’t have a taxable income as they would have to claim a refund later.

NO TDS IN SOME CASES

If you withdraw from the PF account after five years of continuous service, the amount is tax-free. In such as scenario, TDS is not deducted and you are not required to submit PAN or form 15G or 15H. In case of unforeseen circumstances such as loss of job due to ill health or discontinuation of business by employer, you get an exemption from paying any kind of tax on the PF withdrawal amount. In such cases, no TDS will be deducted either.

If you transfer your PF account from one employer to another, or if the PF amount is less than Rs.30,000 but you have not completed five years, you don’t have to pay TDS.

**Source - Mint