Dear All,
Is there any amendment in the Provident Fund Act or any notification by the government that if a person will withdraw his Provident Fund before the completion of 5 years, then 33% will be deducted in the form of tax? I just want to clarify it with my respected seniors. In my company, which belongs to TATAS and has our own Trust for this purpose, deductions are made on the Provident Fund if an employee withdraws before 5 years. Please reply with details.
Yours Faithfully,
Ranjeet
From India, New Delhi
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12Is there any amendment in the Provident Fund Act or any notification by the government that if a person will withdraw his Provident Fund before the completion of 5 years, then 33% will be deducted in the form of tax? I just want to clarify it with my respected seniors. In my company, which belongs to TATAS and has our own Trust for this purpose, deductions are made on the Provident Fund if an employee withdraws before 5 years. Please reply with details.
Yours Faithfully,
Ranjeet
From India, New Delhi
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Dear Ranjit,
I presume yours is an exempted establishment. I have not come across special provisions for such establishments. I believe that the rules of such establishments will be different, and there may be provisions in the respective trust deed to this effect. I shall study the matter and get back to you very soon. Till then, please bear with me.
Regards,
Madhu.T.K
From India, Kannur
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I presume yours is an exempted establishment. I have not come across special provisions for such establishments. I believe that the rules of such establishments will be different, and there may be provisions in the respective trust deed to this effect. I shall study the matter and get back to you very soon. Till then, please bear with me.
Regards,
Madhu.T.K
From India, Kannur
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PF through a separate trust is permitted only when the establishment offers better facilities through the trust than that offered by the EPFO. These establishments are called exempted establishments. The PF of exempted companies will be regulated by the schemes framed in this respect by the respective establishment. Therefore, provisions relating to tax deduction at a rate of 33% when an employee withdraws the fund before 5 years shall be available in the TATA's provident fund schemes only. There is no such provision in the Employees Provident Fund & Miscellaneous Provisions Act or Schemes.
Regards,
Madhu.T.K
From India, Kannur
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Regards,
Madhu.T.K
From India, Kannur
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Dear Ranjit,
As already pointed out, there is no such provision either in the EPF Act or EPF Schemes. For exempted establishments which are given permission to have a separate PF Trust, the schemes will be made by the establishment only, and in that scheme, it should have been mentioned that 33% shall be deducted if any employee leaves before 5 years of service. There is no such provision in the Act; therefore, this is not applicable to other establishments covered by the EPF Act.
Regards, Madhu.T.K
From India, Kannur
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As already pointed out, there is no such provision either in the EPF Act or EPF Schemes. For exempted establishments which are given permission to have a separate PF Trust, the schemes will be made by the establishment only, and in that scheme, it should have been mentioned that 33% shall be deducted if any employee leaves before 5 years of service. There is no such provision in the Act; therefore, this is not applicable to other establishments covered by the EPF Act.
Regards, Madhu.T.K
From India, Kannur
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Dear Ranjeet,
Your query needs some explaining. PF may or may not be taxable under certain conditions. Here is how it goes:
Employer's contribution to EPF is not considered as taxable salary subject to compliance with stipulated conditions. Employee contribution to EPF is considered as a deduction under section 80C from the gross taxable income to determine the net taxable income.
PF withdrawal is not taxable only if a person has been in continuous service for 5 years. (Just for the sake of explaining, in your case, if you have had a PF balance from your previous employer, then such balance should have been transferred from your previous employer to your current employer, and the period of service of both employers would need to be aggregated to check if you have completed 5 years of continuous service).
The general perception is that whatever the balance with the Provident Fund is non-taxable at the time of withdrawal. However, it is not entirely correct. There are circumstances when even the savings in the provident fund (accumulated balance) become taxable.
Section 10(12) of the IT Act exempts all payments from any provident fund set up by the Central Government or any provident fund on which the Provident Fund Act applies. This means if you are an employee of the Central government, State Government, or of any employer whose funds are managed by Provident Fund authorities, any payment from such a provident fund is totally exempt.
Wherever an employer maintains the PF of the employees through a trust and gets recognition from the Commissioner of Income Tax for such a trust, the employee needs to be careful regarding the taxability of the accumulated balance because the payments from such a recognized PF are taxable in certain circumstances. Section 10(12) of the IT Act gives an exemption to payment from a recognized provident fund as under:
(12) the accumulated balance due and becoming payable to an employee participating in a recognized PF, to the extent provided in rule 8 of Part A of the Fourth Schedule;
Rule 8 of Part A of the Fourth Schedule of the IT Act provides the circumstances under which the accumulated balance payable to an employee is exempt from tax. If an employee fulfills any of the following conditions, payment from the recognized provident fund is tax-free:
(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employee's ill-health, or by the contraction or discontinuance of the employer's business or other cause beyond the control of the employee, or
(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognized PF maintained by such other employer.
Regards,
Rahul Kumar
From India, New Delhi
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Your query needs some explaining. PF may or may not be taxable under certain conditions. Here is how it goes:
Employer's contribution to EPF is not considered as taxable salary subject to compliance with stipulated conditions. Employee contribution to EPF is considered as a deduction under section 80C from the gross taxable income to determine the net taxable income.
PF withdrawal is not taxable only if a person has been in continuous service for 5 years. (Just for the sake of explaining, in your case, if you have had a PF balance from your previous employer, then such balance should have been transferred from your previous employer to your current employer, and the period of service of both employers would need to be aggregated to check if you have completed 5 years of continuous service).
The general perception is that whatever the balance with the Provident Fund is non-taxable at the time of withdrawal. However, it is not entirely correct. There are circumstances when even the savings in the provident fund (accumulated balance) become taxable.
Section 10(12) of the IT Act exempts all payments from any provident fund set up by the Central Government or any provident fund on which the Provident Fund Act applies. This means if you are an employee of the Central government, State Government, or of any employer whose funds are managed by Provident Fund authorities, any payment from such a provident fund is totally exempt.
Wherever an employer maintains the PF of the employees through a trust and gets recognition from the Commissioner of Income Tax for such a trust, the employee needs to be careful regarding the taxability of the accumulated balance because the payments from such a recognized PF are taxable in certain circumstances. Section 10(12) of the IT Act gives an exemption to payment from a recognized provident fund as under:
(12) the accumulated balance due and becoming payable to an employee participating in a recognized PF, to the extent provided in rule 8 of Part A of the Fourth Schedule;
Rule 8 of Part A of the Fourth Schedule of the IT Act provides the circumstances under which the accumulated balance payable to an employee is exempt from tax. If an employee fulfills any of the following conditions, payment from the recognized provident fund is tax-free:
(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employee's ill-health, or by the contraction or discontinuance of the employer's business or other cause beyond the control of the employee, or
(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognized PF maintained by such other employer.
Regards,
Rahul Kumar
From India, New Delhi
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Sir,
I worked for Perot Systems, TSI Limited for 2.5 years. I was laid off from the company on 21st Feb 2009. Last month, I applied for my PF withdrawal. Now, I received 49K as my PF after a 30% tax deduction. Since I was laid off from the company and never resigned, is it valid for the company to deduct my PF by such a heavy amount when my current year's salary is below the exemption limit.
Kindly reply.
From India, Jammu
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I worked for Perot Systems, TSI Limited for 2.5 years. I was laid off from the company on 21st Feb 2009. Last month, I applied for my PF withdrawal. Now, I received 49K as my PF after a 30% tax deduction. Since I was laid off from the company and never resigned, is it valid for the company to deduct my PF by such a heavy amount when my current year's salary is below the exemption limit.
Kindly reply.
From India, Jammu
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The above discussion pertains to the 2008-2010 period. Now, the Employees' Provident Fund Organisation has taken a stand (though after repeated demands from the Income Tax department) that any PF withdrawal before 5 years of service should be made after the deduction of tax at source. This will come to around 36% with a lot of cess and charges. In respect of employees whose incomes are not subject to income tax deduction, they can get it without TDS by furnishing a declaration in Form 15G. Persons who do not give this declaration will get PF after deducting tax as mentioned above.
For a taxpayer, it will not make any difference because they can claim it back by filing their IT returns. However, I am afraid if the EPFO will generate Form 16/16A and give it to us!! I have apprehensions because it should come from a government department and the organization from where the government is trying to take funds to run the government. Please note that the government had even tried to tax PF withdrawals before 58 years of age, making the choice of private employees inflexible.
Madhu.T.K
From India, Kannur
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For a taxpayer, it will not make any difference because they can claim it back by filing their IT returns. However, I am afraid if the EPFO will generate Form 16/16A and give it to us!! I have apprehensions because it should come from a government department and the organization from where the government is trying to take funds to run the government. Please note that the government had even tried to tax PF withdrawals before 58 years of age, making the choice of private employees inflexible.
Madhu.T.K
From India, Kannur
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Hi, I am Rikka. I am working in an IT firm. At the time of the interview, I asked the company to pay me 40k in hand as my take-home salary without any deductions like PF, ESIC. But now the company wants me to submit the tax-saving investment receipts so that tax would not be deducted. I want to know if PF and ESIC would be included in my gross salary, then how much can I save from the tax. Can anyone explain it clearly?
What are the tax-saving investments, and how much can we save from the PF and ESIC compliances?
From India, Hyderabad
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What are the tax-saving investments, and how much can we save from the PF and ESIC compliances?
From India, Hyderabad
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Having been employed on a salary of Rs 40,000, you are not entitled to any ESI benefits. Moreover, from ESI contributions, you will not get any income tax benefits either. If, out of your Rs 40,000 salary, the basic component alone is more than Rs 15,000, then you are also excluded from PF contributions. Since the company has not provided you with PF, the question of tax benefits from PF will not arise. Now, you have to consider other tax-saving investments from your side, which may include Home Loan, Mediclaim, Post Office savings, Public Provident Fund, Life Policies, etc. You can provide the details to your company accountant, and they will guide you on what will qualify for tax exemption.
Madhu.T.K
From India, Kannur
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Madhu.T.K
From India, Kannur
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PF Calculation Sheet To The Subscribers At the Time Of Provident Fund Withdrawal.pdf
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