The Employees' Provident Fund Organisation (EPFO) has recently granted its members to get a second non-refundable COVID-19 advance in light of the financial mess created by the second wave of COVID-19, the Ministry of Labour and Employment announced on Monday. A non-refundable withdrawal is granted under this provision, up to 75 per cent of the amount available in the member's EPF account or the basic salary plus dearness allowances for three months, whichever is less. TDS (Tax Deduction at Source) becomes effective if an EPFO subscriber withdraws EPF balance before the 5th year of account establishment. EPF withdrawals are taxed in some cases and remain exempted in others, which we'll get through briefly below.
How contributions towards EPF are taxed?
Employee's contribution, interest on employee's contribution, employer's contribution, and interest on employer's contribution comprise EPF withdrawal.
Employee contribution: The Employee Pension Scheme Account gets 8.33 percent of the 12 percent contribution, whereas the employee EPF account gets the remaining 3.67 percent. EPF membership is mandatory for all employees earning less than Rs 15,000 per month on a monthly basis. This part of your withdrawal isn't subject to taxation respectively.
Interest earned on employee's contribution: If an employee's contribution to the provident fund surpasses Rs 2.5 lakh in any year on or after April 1, 2021, the interest received on that contribution would be taxable. It should be underlined that the new provision solely includes employees' contributions, not the overall amount contributed to the account in any specific year.
Employer's contribution and interest earned on employer's contribution: The total tax-free amount of an employer's contribution to an employee's EPF, NPS, and superannuation account has been suggested in Budget 2020. According to the decision, if an employer's total contribution to EPF, NPS, and superannuation fund in a financial year surpasses Rs 7.5 lakh, the excess amount will be taxable in the hands of the employee. The employer's contribution, as well as any income earned on it, is completely taxable. In your tax return, it is taxed under the head ‘Salary'.
TDS rules on EPF withdrawals
According to the PF withdrawal guidelines, if the EPF/PF account is linked to a PAN, the TDS rate will be 10%, but if the EPF account is not linked to a PAN, the TDS rate would be 20%. However, there are specific circumstances in which a PF account holder can prevent TDS deduction on EPF withdrawal, such as if the withdrawal is made before five years of account establishment. There would be no TDS on a PF withdrawal if the withdrawn amount is less than Rs 50,000. If the amount withdrawn from the PF is more than Rs 50,000, TDS is applied if the annual income of the member is more than Rs 2.5 lakh. If the yearly income of the holder of a PF account is less than Rs 2.5 lakh, TDS can be avoided by filing Form 15G or 15H. Even if the withdrawal amount is higher than Rs 50,000, the PF account holder becomes eligible for TDS exemption by filing Form 15G or Form 15H. Form 15G is for those under the age of 60, whereas Form 15H is for people over 60.
How to fill Form 15G or 15H for PF withdrawal?
Form 15G for TDS exemption is available for free on the websites of all major Indian banks. This form, however, is also available for download on the official site of the Income Tax Department. The Central Board of Direct Taxes (CBDT) has also made the submission of Form 15G and 15H completely paperless. You can also use the EPFO-Unified Portal to submit the forms. Let's continue to learn how to fill out Form 15G for an online EPF withdrawal.
- Visit https://unifiedportal-mem.epfindia.gov.in/memberinterface/ and sign in to your account.
- Now click on the ONLINE SERVICES option - Claim (Form 31, 19, 10C) and verify the last 4-digits of your bank account.
- Now click on ‘Upload form 15G' under the ‘I want to apply for' section.
- Now enter all the required details carefully.
- Once you've finished filling out all of the sections, double-check everything to make sure there are no mistakes before submitting the form.
Under Section 277 of the Income Tax Act, 1961, submitting a false declaration in Form 15G to avoid TDS can result in a penalty and possible imprisonment. According to the official website of the Income Tax Department "If any person (hereafter in this section referred to as the first person) wilfully and with intent to enable any other person (hereafter in this section referred to as the second person) to evade any tax or interest or penalty chargeable and imposable under this Act, makes or causes to be made any entry or statement which is false and which the first person either knows to be false or does not believe to be true, in any books of account or other document relevant to or useful in any proceedings against the first person or the second person, under this Act, the first person shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine. For the purposes of establishing the charge under this section, it shall not be necessary to prove that the second person has actually evaded any tax, penalty or interest chargeable or imposable under this Act.".