Hi Atom,
When you are earning the salary your gross salary will be considered as income.For Example your gross salary is Rs.50000 pm and Basic Salary is Rs.20000 on which PF deductions are Rs.2400.Since income tax should be on Gross salary they should deduct IT on Rs.50000 but employer will deduct only on Rs.47600 since your PF amount is exempted from IT(Since it is retiral benefit).But when you withdraw before retirement that will be considered as normal income,hence TDS will be there on the withdrawal.
Incase if you are not falling under 30% IT slab,you can claim back from the IT department by submitting your IT returns with the help of TDS certificate(issued by PF trust) and Form-16.
Regards,
Ramanjaneya Reddy.G.K