Introduction

The contribution is made in the Employee Provident Fund (EPF) for the employee’s welfare by the employee and the employer. The deduction is available under section 80C. Provident fund is a kind of security fund in which the employees contribute a part of their salary and the employer also contributes on behalf of their employees. Section 10(11) and 10(12) of the Income Tax Act defines the exemption on the amount added to the provident fund. Additionally, the amount allowed as a deduction on contributing to the provident fund is dealt in section 80C of the Income Tax Act. The types of provident funds are:

  1. Recognized Provident Fund (RPF) as recognized by Commissioner of Income Tax under EPF and Miscellaneous Provision Act, 1952. It applies to enterprises employing at least 20 employees.
  2. Unrecognized Provident Fund (UPF) is not recognized by the Commissioner of Income Tax. The employers and employees start these schemes.
  3. Public Provident Fund (PPF) under Public Provident Fund Act, 1968 is another system of contributing to the provident fund. Self-employed people can also take part in this scheme. A minimum contributing limit of Rs. 500 per annum and a maximum of Rs. 150000 per annum are set.
  4. Statutory Provident Fund (SPF) is meant for employees of Government or Universities or Educational Institutes affiliated to University.

Tax Treatment of Provident Fund

Particulars Recognised PF Unrecognised PF Statutory PF Public PF
Employer’s Contribution Contribution to 12% of salary is exempt, above that is added to salary income of the employee. Not taxable Not taxable Not taxable
Employee’s Contribution Section 80C Deduction No Section 80C deduction Section 80C Deduction Section 80C Deduction
Interest on PF Any interest over and above 9.5% is added to Income from Salaries. Until 9.5% interest is exempt. Not taxable Exempt Exempt
Amount withdrew at a retirement time Exempt subject to certain conditions*. Contribution from employer and interest on that is taxable under the head Income from Salaries; Contribution by an employee is not taxable, and employee’s contribution interest is taxable under the head Income from Other Sources. Exempt Exempt

Conditions:

  1. Employee leaves the job after 5 years of employment; or
  2. Where the service period is less than 5 years, the reason for termination is discontinuance of employer’s business or ill health; or
  3. The balance in RPF is reassigned to RPF with the new employer on re-employment.

 10 Things To Know

  1.  To give wider scope for long-term savings, the government has formulated tax laws accordingly. If the withdrawal from a recognized PF happens after 5 years of continuous employment, it attracts no tax liability. Continuous employment is referred to when PF balance maintained with the old employer is transferred to the PF account of the new employer.
  2. The withdrawal does not attract any tax if an employee has been terminated because of certain reasons beyond his control, irrespective of the number of years of employment.
  3. In case, individual withdraw before 5 years, the amount becomes taxable in the same financial year. Thus, the amount has to be shown on your tax return for the next assessment year.
  4. If the person had claimed benefits under Section 80C on own PF contribution, it will be taxed as salary. The interest earned on your own contribution will be taxed as ‘income from other sources’ and taxed according to the respective tax slabs.
  5. TDS (tax deducted at source) – If the withdrawal is after 5 years of a continuous job then, it attracts no TDS or any tax. TDS is deducted at 30% If PAN has not been submitted. If PAN has submitted with Form 15G or 15H then, no TDS is deducted. If form 15G or 15H is not submitted and PAN is submitted, TDS @ 10% is deducted.
  6. The funds which are transferred to a National Pension System (NPS) from a recognized provident fund (PF) account and will not attract any tax.
  7. The Employees’ Provident Fund Organization has to come out with a form for provident fund related claims.
  8. An Employees’ Provident Fund Organization subscribers can submit the new form directly to the retirement fund body if their accounts are linked with Aadhaar and bank account details.
  9. For subscribers who have to link Aadhaar and bank details then, a new composite claim form has been introduced which has to be submitted with acceptance of employers for any claims.
  10. For taking advances from the provident fund corpus no other document is required to be submitted. Partial withdrawal can be done by a subscriber for specific purposes like purchase of flat, construction etc.

Withdrawals from EPF

Tax on EPF is the major concern for every employee. Some believe EPFs withdrawals are not taxable. Withdrawal from EPF can be taxable. TDS is also deducted in some cases.

If the employee withdraws the EPF balance before completing 5 yrs of service, then EPF balance is taxable.

For calculating the period of 5 yrs of service, it is not necessary that service should be continued with the same employer. He may have worked in different organizations. But when a person changes the job, he must get the PF balance in previous company transferred to new company’s PF Account.

Cases when TDS is deducted on EPF withdrawal

TDS on EPF will be deducted if withdrawal is more than Rs 50,000. This is applicable from June 2016. Earlier this limit was Rs 30,000.

The rate of TDS – TDS will be deducted at 10 % provided PAN is submitted. Otherwise, TDS is deducted at the maximum marginal rate of 34.608 %.

EXCEPTIONS

  1. TDS is deducted in case of transfer of PF from one account to another PF account
  2. After 5 yrs of the period of service, no tax is deducted.
  3. In a case where Form 15G or Form 15H are submitted by the employee, then TDS is not deducted and their income would not be taxable after receiving the payment of accumulated PF balance. Form 15H is submitted by senior citizens (above 60yrs of age) and Form 15G is submitted by those who are below the age of 60 yrs.

EPF Withdrawal Rules

The government has introduced new PF withdrawal rules. Let’s have a look at the Old v/s new rules.

  1. Withdrawal restrictions

Whole EPF amount withdrawal is not allowed till the age of retirement. The PF account consists of the contribution made by the employer, a contribution made by employee and interest earned on employer and employee contribution.

The exception to new rule – The exemption is given to female employees resigning from the services for getting married or due to childbirth or pregnancy. They can withdraw the whole EPF Balance.

  1. Retirement Age

The retirement age is 58 yrs. The person can withdraw up to 90% of PF balance on attaining the age of 57 yrs.

  1. PF Membership and employment

The membership as the employee would not withdraw the full PF balance till the age of retirement.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business ReturnBulk Return or Revised Return Filing.