No Tax is levied on the quantity deposited and withdrawn from the Provident Fund account. It is because Provident Fund account comes underneath the EEE bracket i.e. Exempt on Funding, Exempted Curiosity and Exempt on Maturity.
Though no tax is levied on deposits and withdrawals from the Provident Fund, there are some circumstances to be adopted.
There are a number of forms of Provident Funds and the most well-liked of them are:-
- Workers Provident Fund
- Public Provident Fund
This text primarily focuses on the Tax on Worker Provident Fund. For Tax on Public Provident Fund – you might consult with this text – Tax of PPF Account.
Tax on Workers’ Provident Fund account
The taxability on EPF may be segregated into three segments, Tax on the time of funding, Tax on curiosity and tax on withdrawal.
- Tax on the time of Funding
Each the employer and worker contribute part of their wage to the provident fund account. The taxability of each these contributions is defined beneath.
On the time of creating a contribution the quantity contributed by your employer is tax-free whether it is throughout the restrict specified, which is 12%. Any quantity contributed by your employer over and above 12% is taxable in your arms as ‘Revenue from Wage’’.
Your contribution in the direction of PF may be claimed as a deduction underneath Part 80C. Since, the utmost deduction allowed underneath part 80C is Rs. 150,000, subsequently that’s the most you may contribute.
It’s necessary to contribute 12% however you may select to contribute extra, which can be deducted out of your wage. Nevertheless the deduction that you’ll get is restricted upto Rs. 150,000.
- Tax on curiosity earned
The curiosity earned over and above 9.5% is taxable as ‘Revenue from different sources’.
- Tax on the time of withdrawal
The withdrawal quantity of an account consists of the funding/principal portion and the curiosity earned on it. The taxability of the 2 differs on the idea of the time of withdrawal.
If the withdrawal is made earlier than 5 years of steady service, the taxability can be completely different as in comparison with if the withdrawal is made after 5 years of steady service.
- Tax when withdrawal is made after 5 years of steady service
Should you want to withdraw the quantity in your PF account after 5 years of steady service (membership of the account) then your entire quantity together with the principal and curiosity withdrawn by you shall be tax-free. The curiosity earned with respect to your contribution and your employers’ contribution is exempt from tax.
- Tax when the withdrawal is made earlier than 5 years of steady service
In case, the place the quantity is withdrawn earlier than 5 years, the taxability of funding quantity and the curiosity quantity is completely different. Let’s have a look at it intimately.
1. Funding quantity
pf withdrawal taxability we have now learn earlier the funding quantity consists of the employer’s contribution and the worker’s contribution.
i) Employers’ contribution
Your entire quantity invested by your employer will change into taxable in your arms as ‘Revenue from Wage’ on the time of withdrawal.
ii) Worker’s Contribution
The quantity invested by you shall change into taxable as ‘Revenue from Wage’, if whereas making the funding you had claimed it as an funding deduction underneath part 80C. If not, then it gained’t be taxable, since you’d have had paid tax on it whereas making the funding.
2. Curiosity quantity
Your entire curiosity earned by you on each your (worker’s) contribution and employer’s contribution shall change into taxable as ‘Revenue from different sources’.
Due to this fact, in the event you withdraw earlier than 5 years of steady service then your entire quantity invested and earned turns into taxable underneath completely different heads of earnings.
Exception to the rule if withdrawal is made earlier than 5 years
If a withdrawal is made earlier than 5 years of steady service and the explanation for discontinuation of service falls in any of the of the next causes given beneath then, it shall be handled as if it was withdrawn after 5 years, i.e. it shall not be taxable.
- Medical Emergency
- Discontinuation of employer’s enterprise
- Causes past the management of the worker
|Withdrawal||Funding Quantity||Total Curiosity Quantity|
|Worker’s Contribution||Employer’s Contribution|
|After 5 years of steady service||Exempt||Exempt||Exempt|
|Earlier than 5 years of steady service||Deduction u/s 80C availed on the time of investment- Taxable as Revenue from Wage.
Deduction u/s 80C not availed on the time of investment- Not Taxable
|Taxable as ‘Revenue from Wage’||Taxable as ‘Revenue from different sources’|
TDS on withdrawal from Provident Fund Account
In response to the Revenue Tax Act, if an individual is withdrawing lower than Rs. 50,000 then TDS shall not be deducted. Nevertheless, if the withdrawal is greater than Rs. 50,000 then it’s obligatory for the assessee to furnish his PAN quantity.
In case you are not liable to pay tax even after the addition of the withdrawal quantity then you may furnish Kind 15G/ 15H alongside along with your PAN quantity and the TDS is not going to be deducted.
However in the event you fall within the tax bracket then you definitely can’t give Kind 15G/ 15H, and since PAN is necessary, upon submitting the PAN, a TDS on the price of 10% shall be deducted.
Nevertheless, in the event you fail to furnish your PAN quantity with the EPFO authorities, and your withdrawal is greater than Rs. 50,000 then the TDS can be deducted at a whooping 34%.
Worker Pension Scheme
Part of the employer’s contribution to Provident goes in the direction of the Worker Pension Scheme. The quantity credited within the EPS account can solely be withdrawn earlier than 10 years of steady service after which it can’t be withdrawn and the pension is obligatory.
Nevertheless, in the event you withdraw earlier than 10 years, then your entire quantity withdrawn by you turns into taxable. Nevertheless, in the event you withdraw it on retirement, your entire quantity is not going to get taxable. There are specific exemptions which may be claimed if the quantity is withdrawn on retirement and the identical have been defined on this article – Tax on Pension Revenue.