Understanding TDS on Provident Fund Settlements: Seeking Expert Guidance on Tax Implications After Resignation

I would like to request experts to shed light on TDS regarding the settlement of PF after resigning from an organization. I am currently employed at a company that has its own Employee PF Trust, which differs from the state-run Employee Provident funds. They make deductions for EPF as well as VPF and provide interest based on rates determined by the government. Recently, one of my colleagues left the organization and, during his full and final settlement, he received PF proceeds after TDS.

To the best of our knowledge, any proceeds received from Life Insurance and provident funds are exempt from Income tax. I kindly request guidance on this topic and any relevant rulings.

Thanks in advance to all.

If you withdraw the PF before completing 5 years of service, the amount of PF is liable to TDS.

TDS on PF Withdrawal Before 5 Years of Service

If you withdraw the PF before completing 5 years of service, the amount of PF is liable to TDS. Please check the period of employment of your friend with the company.

Tax Implications of EPF Withdrawal Before 5 Years

Please note, if EPF is withdrawn before 5 years, then the proceeds are taxable. Hence, TDS is deducted by your company.

In the other case, when proceeds are received from the EPF government department, the member is required to report this as income in their income tax return and pay the taxes on it.

In my view, the amount received as a settlement of a PF account is not taxable. However, interest earned on it after the receipt is taxable.

I suggest taking up this matter before the RPFC who has granted the exemption to the trust of the covered establishment.

Regards,
A. K. Chandok
RPFC (Retd.)
www.akchandok.com

An employee who was covered under the PF Act served the company for less than 5 years. The question is whether he will receive his PF contribution, including interest earned thereon, for the period he worked with the company without TDS. There are three components involved: employee contribution, employer contribution, and interest earned during the period in question.

I am of the opinion that the PF amount to be received will not be taxable, but the interest earned on the same is subject to tax.

Regards,
Sibabrata Majumdar
Management Consultant Legal & HR
[Email Removed For Privacy Reasons]

Tax Implications of Withdrawing Provident Fund Before 5 Years

Please see the link Withdrawal from Provident Fund before Completion of 5 years taxable?

The withdrawal amount is taxable if the amount is withdrawn before the completion of 5 years.

The second logic is that when the PF is deducted, one must have a deduction under Section 80C of the Income Tax Act. If it is withdrawn before 5 years, it does not qualify as a long-term deposit. The rebates in income tax are only for Long-Term Deposits. In PPF, the locking period is 7 years, and if the money is withdrawn, it becomes taxable.

In other words, in the year when the money is withdrawn, the amount will be shown as income in the financial year. When tax calculation takes place, it will be:

Salary Income + amount withdrawn from PF. If the total sum falls under the tax bracket, then tax must be paid as per the rules.

For example, if I worked with one company for 5 years and in the 6th year I am unemployed with an income of "0," and I withdraw Rs. 1,00,000 from PF, this total income will qualify for tax. However, Rs. 1,00,000 is tax-free; hence, I do not have to pay tax.

The method of payment can be either by TDS (by your employer) or by self-assessment tax.

Regards,
Ramakant

Hello,

I have completed my first company service. It was about 4 years, 11 months, and 15 days. However, now 5 years have passed since my resignation. Am I liable for TDS deduction if I withdraw my PF now?

If a person was working in XYZ company and left the job on 31st January 2011 without working in any other establishment after that date, the following questions arise:

1. If he goes for withdrawal of his PF now, what will be the condition of his T.D.S.?
2. If he goes for withdrawal of his PF on 1st February 2016 (after 5 years), what will be the condition of his T.D.S.?