Provident Fund

How to Show PF Withdrawal in Income Tax Return?

EPF is the name of a retirement benefit programme run by the Employees' Provident Fund Organisation.Each month, equal monthly contributions are made to the EPF system by both employees and employers totaling 12% of the base wage and dearness allowance.

Withdrawal in Income Tax Return 8.33% of the employer contribution goes to the employee pension plan. Businesses with up to 100 employees who are paid an average wage of less than 15,000 per month are eligible for the incentive. For non-government organisations, the EPF contribution has been lowered from 12 to 10%.

Contributions to EPF accounts are tax deductible for individuals under Section 80C. It would be beneficial to understand how an EPF withdrawal might affect income tax or TDS.

What Is the Process for Withdrawing PF?

The employee has the option to terminate their employment after five years of continuous service. However, if they withdraw their PF prior to the five-year term, they must pay tax in accordance with the guidelines outlined in the income tax law.It’s interesting to note that EPF withdrawals are occasionally taxed and occasionally exempt. 

According to experts, even if the amount withdrawn is exempt from income tax, information regarding the withdrawal from the PF account must be included in your Income tax return form, also known as an ITR form.

In the wake of the coronavirus outbreak, the government has permitted people to leave PF. Employees are permitted to withdraw up to three months’ worth of basic income and dearness allowance or 75% of their account, whichever is less. 

For instance, if your PF account has a balance of 100,000 and your monthly take-home pay and dearness allowance equal 20,000, you will be qualified to withdraw up to 60,000.

According to government regulations, an employee may take funds from the pandemic assistance programme even if they have not yet served for five years. However, experts advise disclosing this information at the time of completing your income tax return because the Income Tax agency may check your account and find a discrepancy.

EPF Is Terminated Before Five Years

TDS will be taken out if you leave the EPF before 5 years of nonstop service. Your time spent working for the previous employer is also counted toward the five years of service requirement. If you transfer your EPFO amount from one employer to another and have worked for that new employer for five years or more overall, no TDS is taken out. Do not forget that you must calculate the precise 5 years; if you are off by a few days, you will not be given a pass.

A Temporary Worker for About 5 Years

Consider the scenario when you have a contract or have been hired on a temporary basis. You are not on the permanent rolls at this time, so your company is not required to make EPF contributions. You are eventually added to the payroll, at which point your employer starts making your EPF contribution. 

Use Vakilsearch’s EPF calculator to figure out how much money will be accumulated in your EPF account when you retire.

After five years, you decide to leave. The company will deduct TDS from your EPF withdrawal because the five years aren’t quite up. This term, however, covers the months during which you weren’t on the permanent roster.

 An Recognised EPF

An unrecognised provident fund is one that has not received Commissioner of Income Tax approval. It can have received formal recognition from the commissioner of provident funds or another official body. 

However, a fund must have approval from an income tax commissioner in order to benefit from the income tax advantages of a recognised provident fund (where withdrawals are excluded after 5 years).Your URPF withdrawals are taxed if you are a member whether or not you have accumulated 5 years of service. Our advice: It’s helpful to inquire about the status of your EPF registration with your employer.

Taxation of Withdrawals

Your EPF payout consists of three parts.

  • Contribution from both you and the employee
  • Your/your employee’s contribution is of interest
  • Contributions from employers and interest on contributions from employers

Contribution From You And/or the Employee

  • This is how much you contributed to your EPF. There is no tax due on this portion of your withdrawal. However, if you’ve previously deducted your contribution from your income under section 80C, you might be required to pay additional taxes as if you hadn’t.
  • Your/your employee’s contribution is of interest
  • This share is subject to taxation as another source income
  • Contribution from employers and interest on contributions from employers
  • Interest earned on the employer’s contribution is completely taxed. It is taxed on your tax return under the heading for head salary. When TDS is taken out of it, you’ll probably see an entry under salary TDS in your Form 26AS.

TDS Levels

  • If the EPF balance is withdrawn before five years of service, TDS is deducted at a rate of 10%.
  • Whenever you withdraw money, don’t forget to mention your PAN. TDS must be withheld at the highest slab rate of 30% if PAN is not provided. If there is no tax on your overall income, including the EPF withdrawal, you may file Form 15G/Form 15H. TDS is not withheld if Form 15G or Form 15H are submitted.

How May TDS on EPF Withdrawal Be Avoided?

Here are some strategies for avoiding TDS on withdrawals from EPF:

  • Try not to remove EPF funds and transfer them to your new account: https://www.epfindia.gov.in/site_en/index.php at your new employer when you shift employment
  • If you can postpone taking money out of your account for five years (consistent employment with all employers), withdrawals made beyond that point won’t be subject to TDS
  • A withdrawal that is less than 50,000 is exempt from TDS.

Get more information about PF, withdrawal, and other programmes by contacting our Vakilsearch experts. To satisfy all of your legal needs, we help you get in touch with reliable specialists and collaborate with them.

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