Small concession: TDS only for PF withdrawals of Rs50,000 or more

The government has raised the threshold limit for deduction of tax at source (TDS) on PF withdrawals from existing Rs30,000 to Rs50,000 and the provision will come into effect from 1 June 2016, providing some relief to subscribers of retirement fund body EPFO .

"The Finance Act, 2016 has amended section 192A of Income Tax Act, 1961 to raise the threshold limit of PF withdrawal from Rs 30,000 to Rs 50,000 for Tax Deducted at Source (TDS)," a notification stated.

The government had introduced the proposal to deduct TDS on PF withdrawals in order to discourage pre-mature withdrawal and to promote long-term and perpetual savings.

As per existing provisions, TDS will be deducted at the rate of 10 per cent provided PAN is submitted. This will cost an additional Rs5,000 on every Rs50,000 withdrawn from the already tax-paid savings.

However, in case Form 15G or 15H is submitted by the member, then TDS is not deducted. These forms are to declare that their income would not be taxable after receiving payment of their PF accumulations from retirement fund body EPFO.

While Form 15H is submitted by senior citizens (above 60 years of age), Form 15G is submitted by claimants below the age of 60 years.

TDS is deducted at the maximum marginal rate of 34.608 per cent if a member fails to submit PAN or Form 15G or 15H.

However, there are certain exceptions to deduction of TDS by EPFO. TDS shall not be deducted in case of transfer of PF from one account to another PF account.

Also, no tax is deducted if employee withdraws PF after a period of five years.