Section 192A of the Income Tax Act, 1961

Section 192A of the Income Tax Act, 1961

  • 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 accumulated sum to employees.
  • Tax deduction to be made on the lump-sum payment which is includable in the total income of the employee. i.e Employers contribution, Interest on employers contribution, Interest on employees contribution.  
  • Threshold limit is 50000
  • Rate – 10 percent
  • No TDS to be deducted if employee furnishes Form 15G

Income Includable in the Total Income :

  • According to the provisions of Part A of forth schedule to the Income Tax Act,1961 the withdrawal of accumulated balance by an employee from the Recognized Provident Fund is EXEMPT from taxation.
  • For the purpose of discouraging pre-mature withdrawal and promoting long term savings, if employee makes withdrawal before continuous service of five years (other than cases of termination due to ill health, contraction or discontinuance of business, cessation of employment) and does not opt to transfer accumulated balance to new employer-Tax on withdrawn amount is required to be calculated  by re-computing the tax liability of the  years for which contribution to RPF has been made by treating the same as contribution to Un-recognized Provident Fund and will be taxed as per the tax rates of that period
  • Suppose you made EPF contributions between FYs 2017-18 and 2018-19. Then, in FY 2019-20 you quit your job and in the same year you want to withdraw the accumulated EPF money. In such a scenario, the withdrawal from EPF will be taxable in FY 2019-20. However, the tax rate on EPF withdrawal will be the marginal tax rates that were applicable to you between FYs 2017-18 and 2018-19.
  • EPF contribution is made up of four components – employee’s contribution, employer’s contribution, interest on employee’s contribution, and interest on employer’s contribution. Out of these, three components – employer’s contribution and interest earned on both the contributions are fully taxable. And Employee’s Contribution will be added back to his income if he claimed deduction under Sec 80C in that year i.e 2017-18 and 2018-19.
  • Even if your current income tax liability is zero, you are still liable to pay tax on the withdrawal from EPF. This is because it is the tax liability for the previous financial years when PF contributions by you and your employer were made. It would have been taxable had the PF been an unrecognised one from the start.
  • Let us understand the Above provision with an Example –

Mr Sharma is an Employee of A Ltd and the following are the details of contribution to Provident Fund by Sharma and A Ltd for the FY 2017-18 and 2018-19.

FYEmployee’s ContributionEmployer’s ContributionInterest on Employer’s ContributionInterest on Employee’s Contribution
2017-1810000010000045004500
2018-1910000010000045004500

Taxable income and Tax paid in the above years are –

FYTaxable Income (in Rs)Tax Paid (without considering cess)
2017-1810,00,000112500
2018-1910,00,000112500

He withdrew the entire accumulated balance of PF in FY 2019-20, i.e before continuous service of 5 years –

FYTaxable IncomeReversal-80CEmployer’s ContributionInterest (Employer & Employee)Revised IncomeRevised TaxTax PaidDifferential Amount to be paid
2017-1810000001000001000009000120900017520011250062700
2018-1910000001000001000009000120900017520011250062700

*Diff in tax rates is not considered in the above illustration

Therefore, On withdrawal of accumulated balance before completion of 5 years, the following benefits claimed in the previous years are to be reversed-

  • Deduction of Employee’s Contribution under Sec 80C
  • Exemption of Employer’s Contribution below 12 % p.a of Salary
  • Exemption of Interest income  below 9.5% p.a of Salary

*Salary for this purpose means basic and dearness allowance-if provided in terms of employment for employment for retirement benefits and commission as a percentage of turnover.

Before withdrawal of accumulated balance employees need to consider the above provisions.

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