Understanding TDS on PF Withdrawals: How the 2015 Finance Act Changes Affect You

Introduction of Section 192A in the Finance Act, 2015

The Finance Act, 2015 (20 of 2015) has inserted a new section 192A regarding the payment of accumulated provident fund balance due to an employee. The provision shall take effect from 1st June, 2015. A copy of the said provision is enclosed for information.

Income Tax Deduction at Source (TDS) Rates

Income Tax shall be deducted at source (TDS) at the following rates if, at the time of payment, the accumulated PF balance is more than or equal to Rs. 30,000/-, with service less than 5 years:

1. TDS will be deducted at 10% provided PAN is submitted. In case Form No. 15G or 15H is submitted by the member, then no TDS shall be deducted.
2. TDS will be deducted at the maximum marginal rate (i.e., 34.608%) if a member fails to submit PAN (and no Form No. 15G or 15H).

Cases Where TDS Shall Not Be Deducted

TDS shall not be deducted in respect of the following cases:
• Transfer of PF from one account to another PF account.
• Termination of service due to ill health of the member, discontinuation/contraction of business by the employer, completion of a project, or other causes beyond the control of the member.
• If an employee withdraws PF after a period of five years of continuous service, including service with a former employer.
• If PF payment is less than Rs. 30,000/- but the member has rendered service of less than 5 years.
• If an employee withdraws an amount more than or equal to Rs. 30,000/-, with service less than 5 years but submits Form 15G/15H along with their PAN.

A flowchart is appended for understanding the implications of the amended provisions in the Income Tax Act, 1961.

While the EPF organisation is gearing up to implement TDS provisions, the Government of India is having second thoughts.

Refer to this link: [Taxing premature PF withdrawals of over Rs 30k may be kept in abeyance - The Economic Times](http://economictimes.indiatimes.com/wealth/savings-centre/savings-news/taxing-premature-pf-withdrawals-of-over-rs-30k-may-be-kept-in-abeyance/articleshow/47379054.cms)

Here, I have attached the circular. Please go through it.

Pressures against TDS being made applicable for PF withdrawals:

Unions question TDS on PF withdrawals, want order on hold | Latest News & Updates at Daily News & Analysis

All decisions have to be thoughtful and seen in totality. IT may want to show a boost in revenue collections, but pressures are there from affected parties.

Dear Naresh Ji,

Could you please tell us why you feel that this is one of the bad decisions of the Modi Government? Your insights will provide information on this new section 192A.

Controversy Surrounding TDS on Salaried Individuals

The decision regarding TDS is controversial to some extent because the general feeling is that salaried people are squeezed from all directions in the tax net. While businesses have many loopholes to evade and escape taxes, salaried individuals are subject to maximum scrutiny, even though the potential for tax collection from them is almost fully exploited.

There is undoubtedly potential for increasing tax revenue from business people, and this area remains unaddressed by the Income Tax authorities. This could be the reason why people feel negatively about TDS on PF withdrawal.

Economic Strain on the Working Class

1. In the present day of high prices, the working class, including government employees, is generally living with serious economic strains and limitations. Therefore, I fully agree with the opinion of Mr. Naresh that the current government has made a bad decision.

Concerns About Social Security

2. In the coming days, as per newspaper reports, I believe the government will completely abolish the concept of social security. There will be no provident fund, no ESI. Employees, whether working in the organized sector or the unorganized sector, will be left at the mercy of the employer or the Almighty regarding issues such as sickness, invalidity, old age, etc. The guiding factors for the current government do not seem to be the policies of the ILO or the concept of a welfare state. Instead, in the present situation, they seem to strictly adhere to the concept of a free economy, laissez-faire policy, hire and fire policy, and the World Bank.

Dear Sirs,

I would like to inquire whether international workers are also affected by this provision. As nothing has been mentioned in the circular or notification for international workers.

Thank you.

EPF and certain foreign countries have reciprocal arrangements regarding such social benefits.

One needs to visit the EPF office to get proper clarification on the issue of TDS for foreign workers.