EPF Taxation on withdrawal

It's a common doubt that how the EPF amount is going to be taxed? How much of service is required to make it non taxable? and many more. Here i will discuss how EPF withdrawal amount is taxed and how much TDS is deducted.  When you leave your job, you may choose to withdraw your EPF amount. This amount may be taxable and may not. Here are the rules -

How much TDS is deducted ?

• Income Tax shall be deducted at source (TDS) at the following rates if at the time of payment of the accumulated PF balance is more than or equal to Rs.30,000  50,000, with service less than 5 years:-
  
  a) TDS will be deducted @ 10% provided PAN is submitted. In case Form No. 15G or 15H is submitted by the member, then no TDS shall be deducted.
  
  b) TDS will be deducted @ maximum marginal rate (i.e. 34.608%) if a member fails to submit PAN (and no Form No 15G or 15H).
• TDS shall not be deducted in respect of the following cases:-
  
  1) Transfer of PF from one account to another PF account.
  
  2) Termination of service due to ill health of member, discontinuation/contraction of business by employer, completion of project or other cause beyond the control of the member.
  
  3) If employee withdraws PF after a period of five years of continuous service, including service with former employer.
  
  4) If PF payment is less than Rs. 30,000 50,000 but the member has rendered service of less than 5years.
  
  5) If employee withdraws amount more than or equal to Rs. 30,000 50,000, with service less than 5years but submits Form 15G/15H along with their PAN

Taxation when you delay your withdrawal after resign, retire or terminated

If you believe that the amount received is a fully exempt tax on EPF after resign, retire or terminated in case of an employee who is in continues service for a period of 5 years or more. Than you right but not completely. By delay in withdrawal i mean to say that you got off the job in year 2012 and didn't withdraw the amount due in that year and now after 5 years you decide to finally withdraw your EPF amount. In this case taxation is different.

Before i discuss how EPF amount is going to be taxed in case Here is an interesting case which cleared all the air about EPF taxation. 

"The man had retired from a prominent Bengaluru-headquartered software company after 26 years of service, on April 1, 2002, and the total amount in his EPF account then was Rs 37.93 lakh.

Nine years later, on April 11, 2011, he withdrew the grown sum of Rs 82 lakh from his EPF account. This amount included interest of Rs 44.07 lakh that had accrued post his retirement till the date of  withdrawal.

The retired employee did not offer this interest amount to tax, as he viewed it would be exempt under Section 10 (12) of the I-T Act. During assessment proceedings for financial year 2011-12, the I-T  officer sought to levy tax on this amount and the litigation finally reached ITAT's doors."

Based on a reading of Section 10(12) and also the definition of "accumulated balance", the ITAT held: "The exemption is limited to the accumulated balance due and payable to an employee up to the date of his retirement or end of his employment."

ITAT pointed out that the term "accumulated balance due to an employee" is defined as the balance standing to his credit, or such portion of it as may be claimed by the concerned employee under the regulations of the fund "on the day he ceases to be an employee".

Thus, the ITAT agreed that the interest earned post retirement was taxable in the hands of the retired employee. However, it added that the aggregate interest of Rs 44.07 lakh should be taxable in the hands of the retired employee, in the respective financial years in which the interest income actually arose.

Conclusion:-

• Once you cease to be an employee for whatever reason - retire, resign or terminated, than the interest earned from that day (date of exit) till the day you withdraw will be taxable.
     
• This taxable interest from the DOE (date of exit) till date of withdrawal will be taxed in the year of accrual (same as for fixed deposits) and not only in the year of withdrawal. It means if interest earned in this case will be taxable every year and you need to declare it in your ITR.
     

Other Important Points

• The field offices shall deposit the Tax Deducted at Source (TDS) and returns thereof by 7th of the following month.
    
• Members who have rendered continuous service of 5 years or more, including service with former employer, shall not be required to submit PAN and Form No. 15G/15H along with Form No. 19.
     
• Members whose service has been terminated due to his ill health, contraction or discontinuance of business of employer or other cause beyond the control of the member shall not be required to submit PAN, Form No. 15G/15H alongwith Form No. 19. In such cases, no income tax (TDS) shall be deducted.
     
• Form 15G and 15H may not be accepted if amount of withdrawal is more than taxable limit

Related Links : - 
- How to withdraw EPF online using UAN Portal
- How to transfer your EPF online using UAN portal
- EPF Auto Transfer: Composite Declaration Form (Form - 11) w.e.f Sep 2017
- Understanding Employee Pension Scheme, EPS
- All you want to know about Form 15G / Form 15H : Save TDS on Interest Income



References : -
[1] Instructions for deductions of TDS on withdrawal from EPF
[2] Deduction of TDS
[3] Change PF limit from30,000 to 50,000
[4] Times of India article

All you want to know about Form 15G / Form 15H : Save TDS on Interest Income

You receive interest on our deposits (fixed and recurring both) in the bank. If the total interest received on all your deposits is more than Rs. 10,000 in a year then bank deducts TDS on that interest. The bank includes deposits held in all its branches to calculate this limit. Tax deducted at source (TDS) is 10% if your PAN card is updated else it is 20% of the interest amount. There is a way by which you can ask bank not to deduct this TDS. If your income is below the taxable limit, you can submit Forms 15G or 15H to the bank requesting them not to deduct any TDS on your interest.

What is Form 15G and Form 15H?

Form 15G and Form 15H are documents that you can submit to make sure TDS is not deducted on your income if you meet the conditions mentioned below. Also, you must have a PAN before applying for these forms. Some banks allow these forms to be submitted online through the bank’s website.

Form 15H is for senior citizens, those who are 60 years or older and Form 15G is for everybody else. These forms are valid for one year and need to submitted again next year if you are eligible. If your income, including all sources is less than the taxable limit then only you can submit these documents. It is advisable to submit them at the starting of financial year to ensure no TDS is deducted by banks, as once deducted it can be refunded only after filling ITR and not through bank.

Who can submit From 15G?

You need to satisfy below conditions to be eligible to submit form 15G.

• Any individual or HUF who is resident Indian (not NRI).
• You should be less than 60 years old.
• Tax liability for the current financial year should be 'NIL'
• The total interest income for the year is less than the minimum exemption limit of that year, (Rs 2,50,000 for financial year 2017-18)

     

Who can submit From 15H?

• Any individual who is resident Indian (not NRI).
• You are 60 year old or more.
• You are going to be 60 years old during the financial year for which you are submitting form.
• Tax liability for the current financial year should be 'NIL'.

	Examples to understand who can submit Form 15G and Form 15H
	Income of	Neha	Vishesh	Ashish	Rahul
	Age	51 years	25 years	64years	71 years
	Salary	Rs. 1,85,000	–	–	–
	Pension	–	–	Rs. 1,00,000	–
	Fixed Deposit interest income	Rs. 85,000	Rs. 2,60,000	Rs. 1,80,000	Rs. 3,30,000
	Total Income before allowing section 80 Deductions	2,60,000	2,60,000	2,80,000	3,30,000
	Deductions under section 80	Rs. 40,000	Rs. 50,000	Rs. 10,000	Rs. 55,000
	Taxable income	Rs. 2,20,000	Rs. 2,10,000	Rs. 2,70,000	Rs. 2,75,000
	Minimum exempt income	Rs. 2,50,000	Rs. 2,50,000	Rs. 3,00,000	Rs. 3,00,000
	Eligible to submit Form 15G	Yes	No	No	No
	Eligible to submit Form 15H	No	No	Yes	Yes
	Explanation	Form 15G can be submitted as age is less than 60 years. Total tax is nil and interest income is less than minimum exempt income.	Form 15G cannot be submitted since interest income is more than minimum exempt income. TDS deducted can be refunded by filling ITR.	Form 15H can be submitted if age is more than 60 years and tax calculated on total income is nil.	Form 15H can be submitted as age is more than 60 years and tax calculated on total income is nil. Form 15H can be submitted although interest income exceeds minimum exemption limit.

Multiple investments with multiple Entities

• If you make any new investment with same bank, you need to submit new form 15G/H as the estimated income for that FY changes.
     
• For example : During the financial year, you open two new fixed deposit accounts but with the same bank, one FD in the first half of the year and the second one in later half of the FY. In this case, you need to first submit relevant Form to your bank, while opening the first FD account. When you open the second FD account then you need to file new Form 15G/H providing particulars of the same with your bank. You also need to mention the total no of forms filled and the aggregate amount for which the forms have been filled. Here is a screenshot of the online form from ICICI bank.

New Investments with the same Entity

• In case, you receive income from multiple entities then you need to submit Forms to all such income providers.
    
• For example : During the financial year, if you open two FD accounts with two Banks then you are required to submit Form 15G/15H to both the banks separately, in order to avoid TDS.

Frequently Asked Questions

S. No	Common Questions	Truth
1	Can HUF submit Form 15G/Form15H?	HUF can submit Form 15G if it meets the conditions but Form 15H is only for individuals.
2	Can NRIs submit Form 15G/Form 15H?	NRIs cannot submit Form 15G or Form 15H, these can only be submitted by resident Indians.
3	Do I need to submit Form 15G/Form15H at all the branches of the bank?	Yes, you must submit at each branch of the bank from which you will receive interest income. Although, TDS is deducted when total interest earned from all branches exceeds Rs 10,000 in total.
4	Does filing Form 15G/Form15H mean my interest income is not taxable?	Form15G/Form15H is only a declaration that no TDS should be deducted on your interest income since tax on your total income is nil. Interest income from fixed deposits, recurring deposits, and corporate bonds is always taxable.
5	Will my interest income become tax free if I submit Form 15G/Form15H?	Interest income from fixed deposits and recurring deposits is taxable. You should submit this form only if tax on your total income is zero and you meet other conditions listed above.
6	I submitted Form 15G and Form 15H but I have taxable income?	You must intimate to your bank that tax on your total income is not zero. The bank will make changes and deduct TDS. You should report the entire interest income in your tax return and pay tax on it as applicable.
7	Do I have to submit this form to the income tax department?	These forms don’t have to be submitted to the income tax department by you. When you submit them to the deductor, he/she will prepare and submit to the income tax department, a detail of all such forms received.
8	Form 15G/H can be used whenever one wants to avoid paying taxes?	No, one should submit these form if the taxable income is nil and the interest from deposits is taxable. Avoiding paying taxes is illegal.
9	Form 15G/H need to be submitted only once?	These forms are valid for that year and need to submitted every year.
10	I was late in submitting these forms and TDS has been deducted by bank. Can bank refund the TDS after submitting forms?	No, TDS deducted by bank or other financial institutions is submitted to income tax department. In case you are late to submit these forms or extra TDS is deducted by institution than you need to file ITR at the end of FY to get the refund from income tax department.