TMI BlogTDS on withdrawn of EPF before 5 years & International Employees ExemptionX X X X Extracts X X X X X X X X Extracts X X X X ..... TDS on withdrawn of EPF before 5 years & International Employees Exemption - By: - Jugal Patel - Income Tax - Dated:- 14-2-2018 - - TDS on Employees Provident Fund withdrawn before 5 years International Employees Exemption Provident fund is a kind of security fund in which the contribution is made for the employee s welfare by the employee and the employer. Under the Employees Provident Fund Act, 1952, certain specified employers are required to comply with the Employees Provident Fund Scheme, 1952. However, these employers are also permitted to establish and manage their own private provident fund (PF) scheme subject to fulfilment of certain conditions. This provident fund scheme is known as Recognised Provident Fund (RPF) unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Act. Under the existing provisions of rule 8 of Schedule IV, Part A, the withdrawal of accumulated balance by an employee from the RPF is exempt in the hands of employee in the following situations - ■ If the employee has rendered continuous service with his employer for a period of 5 years or more . For the purpose of calculating 5-year time-limit, service rendered with the previous employer shall be included, if the previous employer also maintained recognized provident fund and the provident fund balance of the employee was transferred by him to the current employer. ■ If the employee has been terminated because of certain re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons which are beyond his control ( e.g. , ill health of the employee, discontinuation of business by employer, completion of project for which the employee was employed, etc.). ■ If the employee has resigned before completion of 5 years but he joins another employer (who maintains recognized provident fund and provident fund money with the current employer is transferred to the new employer ). ■ If the entire balance standing to the credit of the employee is transferred to his account under a Pension scheme referred to in Sec 80CCD Notified by Central Govt. (i.e. NPS ) If the employee makes withdrawal befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re continuous service of 5 years (other than the cases given above) , such withdrawal shall be treated as unrecognized provident fund withdrawal. Unrecognized provident fund withdrawal (excluding employee's contribution) is taxable (hereinafter referred to as taxable premature withdrawal ). The Finance Act, 2015 had Inserted a new section 192A regarding the TDS (Tax Deduction at Source) on payment of accumulated provident fund balance due to an employee, the provision shall take effect from 01.06.2015. Who is liable for TDS deduction - Tax is to be deducted by the trustees of Employees' Provident Fund Scheme, 1952 or any other person authorised under the scheme to make payment of accumulated sum to employees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Which amount is subject to tax deduction - Tax is deductible from taxable premature withdrawal . In other words, tax is deductible from accumulated lump sum payment (at the time of retirement or at the time of leaving job) in case the employee has not rendered continuous service of 5 years (and he does not fall in any of the 4 cases given in above ). Out of the lump sum payment, only amount includible in the total income of the employee (i.e. Employer s Contribution Interest on Employers Employee Contribution) is subject to tax deduction at source. (refer example given below in conclusion). As the employee s contribution is not income it is set aside amount of Contribution to PF. Also, Employee s Contribution is considered as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction u/s 80C when EPF is withdrawn before 5 years of service then such deductions are withdrawn TDS is taken care by Section 192(4) which says tax on disallowance of 80C of previous year should be deducted in the year in which EPF is withdrawn. Definition as per Part A of Forth Schedule of Income Tax Act of accumulated balance due to an employee means the balance to his credit, or such portion thereof as may be claimable by him under the regulations of the fund, on the day he ceases to be an employee of the employer maintaining the fund Time of tax deduction - Tax is deductible at the time of payment. Rate of TDS - Tax is deductible under section 192A at the rate of 10 per cent of taxable premature withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awal . If PAN of the recipient is not available, tax is deductible at the maximum marginal rate of tax. What is threshold limit - Tax is not deductible if taxable premature withdrawal is less than ₹ 50,000. No deduction of tax at source - No deduction of tax is to be made if the recipient of income furnishes a declaration in writing in duplicate in prescribed form [ Form No. 15G ]. Foreign nationals exempt from Provident Fund subject to specific condition Foreign National i.e. International Workers (IWs) working in establishments in India to which Employees Provident Fund (PF) regulations apply are required to contribute to the PF except those who have been specifically exempted under the regulations. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is an exception to the Employees from countries with whom India has signed Social Security Agreements (SSA), contributing towards the social security of their home country and holding Certificate of Coverage (COC) from their home country will not be required to contribute towards the Indian social security. As per the provisions of the PF scheme, both employer as well as employee will contribute 12% of monthly pay (as defined). Salary will include the total salary whether received in India or abroad. Conclusion No TDS in respect of the following cases: - Transfer of PF from one account to another PF account. If Entire Balance of PF is transferred by employee to his NPS account Termination of service due t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Ill health of member /discontinuation of Business by employer/completion of project/other cause beyond the control of member. If employee withdraws PF after a period of five year. If PF payment is less than ₹ 50,000/-( w.e.f. 01/06/2016 earlier it was ₹ 30,000/-) but the member has rendered service of less than 5 years. If employee withdraws amount more than or equal to ₹ 50,000/-, with service less than 5 years but submits Form 15G / 15H along with their PAN. No EPF deduction in case IWs working in India having Social security coverage in their home country having SSA with India. Example :- Mr. A join Company X on April 16, 2015 (salary being ₹ 1,00,000/- per month. X Company contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted 12% of Salary towards recognised provident fund. Mr. A also makes same contributions. Mr A makes ₹ 1,20,000/- towards LIC u/s 80C Medical Premium ₹ 10000/- u/s 80D. Mr A resigns on 31 st December 2016. Accumulated Balance on PF of Mr A is ₹ 5,30,000/- (i.e. Contribution of X Company 2,40,000/- Interest thereon ₹ 25,000/- Contribution of A 2,40,000/- interest thereon ₹ 25,000/-). The Accumulated Balance is paid on 10 th January 2017. Lets determine the amount of TDS working take two situations Situation 1:- PF is managed by PF Commissioner under EPF Scheme, 1952 Situation 2:- Company X has taken exemption u/s 17 PF is managed by its PF trust through there own. Assumptions below Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A is not employed by any other person previously doesn t have any PF account before this. Mr A is not joining any company after resignation. The service of A is not terminated because of reasons beyond his control. Mr A has not transferred entire Balance of PF to NPS account before 31 Dec 2016 Situation 1 Calculation of TDS TDS by Employer under section 192 TDS by EPFS under 192A Salary (Rs 100000x9months) 9,00,000 0 Any other Income EPF Withdrawn (240000+25000+25000) - 2,90,000 Gross Total Income 9,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,90,000 Deduction u/s 80C-LIC 1,20,000 80D-Medical Premium 10,000 Income Subject to TDS 7,70,000 2,90,000 Tax on Regular rate on 7,70,000 81,370 Tax on withdrawn of Deduction u/s 80C for the earlier year as calculated below 8,240 Tax to be deducted(*290000x10%) 89,610 29000* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax on withdrawn of Deduction u/s 80C for the earlier year Tax Liability as originally calculated considering Deduction u/s 80C Recomputation of Tax liability (Considering EPF as unrecognised EPF i.e. not allowing 80C ) Salary (Rs 100000x11.5 months) 11,50,000 11,50,000 Any other Income - - Gross Total Income 11,50,000 11,50,000 Deduction u/s 80C-LIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,20,000 1,20,000 80C-EPF (total ₹ 1,38,000 being 12% of ₹ 11,50,000/- but maximum upto ₹ 1,50,000/- in 80C) 1,38,000 Nil (due to EPF premature withdrawn) 80D-Medical Premium 10,000 10,000 Income Subject to TDS 9,90,000 10,20,000 Tax on Regular rate on 9,90,000 1,26,690 1,34,930 Difference in Tax of ₹ 8,240 (134930-126690) will be recovered by way of TDS under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 192 in the FY 2016-17 Situation 2:- Under this case PF is maintained by Company. TDS under 192A is not applicable. TDS under 192 by the employer company will be deducted as follows Calculation of TDS TDS by Employer under section 192 Salary (Rs 100000x9months) 9,00,000 EPF Withdrawn (Employer s Contribution) 2,40,000 Interest on EPF (Employer s) 25,000 Any other Income Interest on EPF employees part 25000 25,000 Gross Total Income 11,90,000 Deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80C-LIC 1,20,000 80D-Medical Premium 10,000 Income Subject to TDS 10,60,000 Tax on Regular rate on 10,60,000 1,47,290 Tax on withdrawn of Deduction u/s 80C for the earlier year as calculated below 8,240 Tax to be deducted 1,55,530 Author can be reached at E-mail:- jugal.patel@samp.co.in M:- +91 9711118662 - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ementindia.com - TMI - TaxTMI - TMITax ..... 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