TDS on withdrawal from EPF Scheme u/s 192A

Introduction

Withdrawal from Employees' Provident Fund Account is chargeable to tax in certain circumstances. In such a situation, the tax shall be deducted at the rate of 10% at the time of withdrawal of the accumulated balance. However, no tax to be deducted if aggregate amount of withdrawal is less than Rs. 50,000.

Provisions for deduction of tax

Deductor

The trustee of the Employees' Provident Fund Scheme or any person authorized under the scheme to make payment of accumulated balance lying in provident fund is liable to deduct TDS in specified cases.

Deductee

Tax shall be deducted if amount payable to an employee, out of accumulated balance of PF, is taxable in his hands.

When withdrawal from EPF is taxable?

The contribution to EPF is believed to be an EEE investment – Exempt in all stages from contribution, interest earning and withdrawal. However, any withdrawal of amount from the accumulated balance of EPF, before completion of 5 years of continuous services, shall be charged to tax. In such situation, the tax shall be deducted under this provision if amount is withdrawn from the EPF account before completion of 5 years. Consequently, no taxes to be withheld if employee has rendered continuous service of 5 years or more before withdrawing the amount from EPF.

Exception 1 – Withdrawal due to reasons beyond control

If the employee has not rendered continuous service for 5 years and his service has been terminated by reason of his ill-health or discontinuance of employer's business or any other cause beyond the control of employee, the amount withdrawn shall not be charged to tax. Consequently, no tax shall be deducted at the time of withdrawal.

Exception 2 – Transfer of EPF balance

No tax shall be deducted if, on change in employment, employee transfers his PF balance to his individual account in any recognized PF maintained with the current employer.

Exception 3 – Investment in notified pension schemes

No tax to be deducted if entire balance standing to the credit of the employee is transferred to notified pension schemes as referred to in Section 80CCD.

Threshold for deducting TDS

TDS is not deductible if the aggregate amount of withdrawal is less than Rs. 50,000.

Rate of TDS

TDS is deductible at the rate of 10%. If recipient is non-resident, the rate of 10% will be increased by Surcharge and Health and Education Cess.

If the deductee does not furnish his PAN to the deductor, the tax shall be deducted at the rate prescribed under Section 206AA[2] .

The provisions of Section 206AB are not applicable if tax is required to be deducted under this provision. Section 206AB provides for deduction of tax at higher rate if the deductee has not furnished the return of income for a specified period.

Timing of deduction of TDS

Tax shall be deductible only at the time of payment.

Compliances

Certificate for lower or nil deduction

Where estimated tax liability of an assessee justifies nil deduction of tax, he can file a self-declaration to the deductor for nil deduction of tax under Section 197A. However, he does not have an option to apply for lower deduction certificate before the assessing officer under section 197.

Deposit of TDS

Tax deducted at source is required to be deposited to the credit of Central Government through Challan ITNS 281 within 7 days from the end of the month in which tax was deducted. However, the tax deducted during the month of March shall be deposited by 30th April of the next financial year. If deductor is a government office and tax is required to be deposited without submitting an Income-tax Challan, the Govt. Dept. shall deposit the tax on the same day on which tax has been deducted.

Filing of TDS Statement

The person responsible for deduction of tax at source is required to file statement of tax deducted at source on quarterly basis in Form 26Q.

TDS Certificate

The deductor shall issue TDS certificate to the assessee in Form 16A These certificates are required to be issued within 15 days from due date of furnishing of TDS Statement.

Consequences of default

Failure to deduct or deposit tax

If any person, who is responsible for deduction of tax at source, fails to deduct or after deduction fails to deposit the same to the credit of Central Government, he shall be deemed to be an assessee-in-default. In such case, he shall be liable for payment of interest under Section 201.

Penalty and Prosecution

Any person who is deemed as an assessee-is-default shall be liable for payment of penalty under Section 271C which shall not exceed the amount he failed to deduct. Further, he shall be liable for prosecution under Section 276B for a term which shall not be less than 3 months but which may extend to 7 years.

Failure to furnish TDS statement

Any person who is responsible for deduction of tax at source is required to furnish a statement of tax deducted at source on quarterly basis, failing which he shall be liable for payment of fee under Section 234E at the rate of Rs. 200 per day during which such default continues. However, such fee shall not exceed the amount of TDS. Further, he shall also be liable for payment of penalty under Section 271H and Section 272A.

Failure to issue TDS certificate

If any person, who is responsible for issue of TDS certificate, fails to issue such certificate, he shall be liable for payment of penalty under Section 272A.

Important Points

1. For the purpose of calculating 5-year time-limit, service rendered with the previous employer shall be included.

2. Amendment made by the Finance Act, 2023 with effect from 01-04-2023. Earlier, the tax was required to be deducted at maximum marginal rate if deductee doesn't furnish his PAN.

3. Tax on sum paid to crew members of foreign going ships is deductible only on estimated income liable to tax in India

Circular No. 586, dated 28-11-1990

Since, in the case of members of crew of foreign-going Indian ships, who are not likely to be in India for a period or periods exceeding 182 days in a year, income which accrues or arises outside India and is also received outside India is not liable to tax in India, the shipping companies and other persons responsible for paying salary to such members of crew may take these factors into account while computing the amount to be deducted as tax and deduct only so much of tax as would be chargeable on the estimated income liable to tax in India. If the shipping company or other person responsible for paying to such members of crew subsequently finds that any person who was earlier considered as not likely to be resident in India, and deduction of tax at source was made on that basis is now likely to be resident in India, the shipping company or the other person responsible for making the payment, may increase the deduction so as to adjust any deficiency arising out of an earlier short deduction or non-deduction during the same financial year.