What is Section 192A? TDS on EPF Withdrawal Explained

Introduction of Section 192A

Section 192A of the Indian Income Tax Act deals with TDS on premature withdrawal from the Employees' Provident Fund (EPF). This section ensures that the government receives a portion of the tax on premature EPF withdrawals, which are considered taxable income in such cases. It also encourages employees to retain their EPF contributions for long-term savings. It also allows individuals to save money, the same is taxed under Section 192A of Income Tax Act.

Note: Section 192A of Income Tax Act is concerned with the TDS on premature withdrawal from EPF. Premature withdrawal – withdrawing amount from EPF account before expiry of 5 years of employment TDS rate - TDS is deducted @ 10 % on the amount withdrawn is more than 50,000.

Why Section 192A Introduced?

Section 192A was introduced to streamline the process of tax collection at the source, ensuring that tax liabilities are settled in a timely manner. This section applies to the withdrawal of accumulated balance from the Employees' Provident Fund (EPF) when an employee exits their job. It is crucial for both employers and employees to understand the implications of this provision, as it directly affects the final settlement of dues.

Applicability & Threshold

1. TDS is applicable when an employee withdraws their EPF balance before completing 5 years of continuous service.
2. No TDS is deducted if the withdrawal amount is ₹50,000 or less.

Rate of TDS:

1. 10% TDS is deducted if the employee provides their PAN.
2. 20% or the maximum marginal rate is applied if the PAN is not provided.

Components on which TDS shall be deducted:

Component of lump sum payment	Is this component taxable in the hands of employee not completing continuous 5 years of service?	Is it subject to TDS if other conditions of section 192A are satisfied?
Employer’s Contribution	Taxable under head “Salary”	Subject to TDS
Interest on Employer’s Contribution	Taxable under head “Salary”	Subject to TDS
Employee’s Contribution	Not Taxable	No TDS required
Interest on Employee’s Contribution	Taxable under head “Other Sources”	Subject to TDS

Section 192A – Key Points to Remember

Aspect	Details
Applicability	When an employee withdraws EPF before completing 5 years of continuous service
Threshold Limit	If the withdrawn amount exceeds ₹50,000, TDS is applicable
TDS Rate	- 10% if PAN is provided - 30% if PAN is not provided
When TDS is Not Applicable	- Withdrawal is less than ₹50,000 - Service > 5 years - Termination due to illness, company closure, etc. - If Form 15G/15H is submitted (provided applicable conditions are met)
TDS Collected By	The EPFO (Employees' Provident Fund Organisation) directly at the time of payment

Example

If you withdraw ₹75,000 before completing 5 years of service:

1. If you submit your PAN, EPFO deducts ₹7,500 (10%) as TDS.
2. If you don’t provide PAN, EPFO may deduct ₹22,500 (30%).

Exceptions:

1. If the total EPF balance withdrawal is less than ₹50,000.
2. When the employee submits Form 15G/15H, declaring that their total income is below the taxable limit (applicable for individuals below 60 years for Form 15G and senior citizens for Form 15H).
3. When the withdrawal is due to reasons such as retirement, health issues, or permanent disability, as per specific conditions.
4. In case of a job change, the PF amount is transferred from one PF account to another.

Example of Section 192A

Mr. Sandeep is withdrawing 80,000 from his EPF account. His completion of employment was 3 years

Solution –

1. TDS is deducted at 10 % on 30,000 = Rs. 80,000 – Rs.50,000
2. TDS paid to govt – 3000 and Mr. Sandeep gets 77,000 (Rs.80,000-3000)

Note: TDS deductors have to file quarterly returns through Form 26Q.

Loan Partial withdrawal from EPF can be made for following purposes

1. Medical expenses
2. Marriage
3. Education
4. Purchase of property or construction of house
5. Renovation of house
6. Repayment of home loan

Conclusion

Section 192A of the Income Tax Act is a vital mechanism for tax compliance related to EPF withdrawals. By understanding the nuances of TDS, both employers and employees can navigate this aspect of taxation more effectively. 

FAQ's

Who is responsible to deduct tax u/s 192A?

Tax is to be deducted by the trustees of Employees ‘Provident Fund Scheme, 1952 or any other person authorized under the scheme to make payment of an accumulated sum to employees.

When to Deduct TDS under Section 192A?

Tax is deductible at the time of payment.

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