With a good motive of discouraging employees for pre-mature withdrawal and to promote long term savings, Union Finance Minister Arun Jaitley had proposed a tax on such early closures/withdrawal of PF during the union Budget 2015-16. It has been stated that any withdrawal of PF shall be taxable if the employee does it before continuous service of five years (other than the cases of termination due to ill health, closure of business, etc.) instead opting for transfer of accumulated balance to new employer. Thus in the Finance Act 2015 a new section 192A has been inserted regarding the TDS on payment of accumulated provident fund balance due to an employee, The provision has been in effect from June 1, 2015.

In such case tax by way of TDS at the following rates will be applicable if at the time of payment of the accumulated PF balance is more than or equal to Rs. 30,000/- Rs. 50,000, along with service period is less than 5 years;

Update: Budget 2016-17, has proposed to increase the limit of Rs. 30,000 to Rs. 50,000 w.e.f. June 1, 2016

  1. TDS will be deducted at 10%, provided PAN is submitted, (In case Form No. 15G or 15H is submitted by the member, then no TDS shall be deducted)
  2. TDS will be deducted at a maximum marginal rate of 34.608% if a member falls to submit PAN.

An important point extracted from above is, no TDS will be applicable if the provident fund withdrawal is less than Rs. 30000 Rs. 50,000. And the clarification is, “this threshold limit is intended to reduce the compliance burden of the employees having taxable income below the taxable limit,”

TDS on premature withdrawal of EPF u/s 192A wef June 1, 2015

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