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Section 192A of Income Tax Act: TDS on EPF Withdrawal

Section 192A of Income Tax Act: TDS on EPF Withdrawal

Section 192A of the Income Tax Act deals with Tax Deducted at Source (TDS) on premature withdrawals from the Employee's Provident Fund (EPF) account. Introduced on June 1, 2015, this section regulates the taxation process for EPF withdrawals. This article will cover the critical aspects of Section 192A, such as the deduction limit, TDS rate, exemptions, and deductors' responsibilities.

Understanding Section 192A

Section 192A requires tax to be deducted before EPF account withdrawal. The deducted tax should be given to the government by the tax collectors within the first week of the next month.

Deduction Limit under Section 192A

Section 192A states that if the amount withdrawn from an EPF account is ₹50,000 or less, no tax will be deducted. If the amount is more, it will be taxed according to current rules. The deduction limit for early EPF withdrawals was raised from ₹30,000 to ₹50,000 in 2016 by the Finance Act.

Rate of TDS under Section 192A

Upon premature withdrawal of EPF, an employee is liable to pay a TDS of 10% as per Section 192A of the Income Tax Act. However, if the employee fails to provide their PAN details, the tax will be deducted at the maximum marginal rate of 34.608%. It is crucial for employees to ensure that they furnish their PAN details to avoid higher TDS deductions.

Exemptions under Section 192A

Section 192A provides certain exemptions where TDS will not be deducted on EPF withdrawals. These exemptions include:

  1. Total amount withdrawn from an EPF account does not exceed ₹50,000.
  2. Transfer of EPF amount from the previous account to a new account due to a job change.
  3. Withdrawal of EPF savings after a continuous service of a minimum of 5 years.
  4. Furnishing PAN card along with Form 15G or Form 15H.
  5. Termination of employment contract due to completion of the project or employee's illness.
  6. Discontinuation of a business venture.

It is important for employees to understand these exemptions to effectively plan their EPF withdrawals and minimize their tax liabilities.

Responsibilities of Deductors

Under Section 192A, the trustees of the Employee's Provident Fund Scheme, 1952, are responsible for deducting and depositing the tax. This can be the employer or any other person authorized under the scheme to pay the accumulated EPF amount to the employee. The deducted tax amount must be deposited in a dedicated Central Government account within a week of the following month.

Deductors are also required to file returns by submitting Form 26Q on a quarterly basis. The due dates for filing these returns are as follows:

Quarter

Due Date

Q1

July 31

Q2

October 31

Q3

January 31

Q4

May 31

By adhering to these timelines, deductors can ensure compliance with the tax regulations and avoid any penalties or legal consequences.

Conclusion

Section 192A of the Income Tax Act outlines the rules for TDS on EPF Withdrawal. It's important for employees to know the deduction limit, TDS rate, exemptions, and the responsibilities of deductors. This helps manage EPF withdrawals, ensure correct tax deductions and avoid legal issues.

Frequently asked questions:

 

1. How much TDS will I have to pay if I withdraw Rs. 20,000 from my EPF balance of Rs. 25,000? 

As per Section 192A of the Income Tax Act, TDS is only applicable if the EPF account balance exceeds Rs. 30,000 during withdrawal. In this case, the total balance is Rs. 25,000, so TDS will not be deducted.

2. Where to show income generated from the EPF account in ITR? 

When withdrawing funds from an EPF account, the income should be reported under Section 10(12) in the Income Tax Return (ITR). It is important to note that PF income is exempt from certain taxes if the individual has been employed in the current organization for a period of 5 years or more.

3. What is the provision of TDS on EPF interest post-retirement? 

Any interest generated from the EPF account after retirement is taxable. Section 194A provisions will be applicable in such cases. TDS is deducted due to the absence of an employee-employer relationship post-retirement.

4. Who can deduct TDS under Section 192 of ITA? 

Employers such as individuals, public and private companies, trusts, Hindu Undivided Families, co-operative societies, and partnership firms can deduct TDS under Section 192 of the Income Tax Act.

5. What happens to the TDS rate if an employee doesn't provide their PAN? 

If an employee doesn't provide PAN details, the Income Tax Department deducts TDS at the higher rate under Section 206AA: 

  • The rate specified in the relevant section of the Act
  • The rate defined in the Finance Act
  • A basic rate of 20%

 

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