Under the Employees Provident
Fund and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952), certain
specified employers are required to comply with the Employees Provident Fund
Scheme, 1952 (EPFS). However, these employers are also permitted to establish
and manage their own private provident fund (PF) scheme subject to fulfillment
of certain conditions.
The provident funds established under a scheme framed under EPF
& MP Act, 1952 or Provident Fund exempted under section 17 of the said Act
and recognised under the Income-tax Act are termed as Recognised Provident fund
(RPF) under the Act. The provisions relating to RPF are contained in Part A of
the Fourth Schedule (Schedule IV-A) of the Act. Under the existing provisions
of rule 8 of Schedule IV-A of the Act, the withdrawal of accumulated balance by
an employee from the RPF is exempt from taxation.
However, in order to discourage pre-mature withdrawal and to
promote long term savings, it has been provided that such withdrawal shall be
taxable if the employee makes withdrawal before continuous service of five
years (other than the cases of termination due to ill health, closure of
business, etc.) and does not opt for transfer of accumulated balance to new
Rule 9 of the said Schedule further provides computation mechanism
for determining tax liability of the employee in respect of such pre-mature
withdrawal. For ensuring collection of tax in respect of these withdrawals,
rule 10 of Schedule IV-A provides that the trustees of the RPF, at the time of
payment, shall deduct tax as computed in rule 9 of Schedule IV-A.
Rule 9 of Schedule IV-A of the Act provides that the tax on
withdrawn amount is required to be calculated by re-computing the tax liability
of the years for which the contribution to RPF has been made by treating the
same as contribution to unrecognized provident fund. The trustees of private PF
schemes, being generally part of the employer group, have access to or can
easily obtain the information regarding taxability of the employee making pre-mature
withdrawal for the purposes of computation of the amount of tax liability under
rule 9 of the Schedule-IV-A of the Act. However, at times, it is not possible
for the trustees of EPFS to get the information regarding taxability of the
employee such as year-wise amount of taxable income and tax payable for the
purposes of computation of the amount of tax liability under rule 9 of the
Schedule-IV-A of the Act.
It is, therefore, proposed to insert a new provision in Act for
deduction of tax at the rate of 10% on pre-mature taxable withdrawal from EPFS.
However, to reduce the compliance burden of the employees having
taxable income below the taxable limit, it is also proposed to provide a
threshold of payment of Rs.30,000/- for applicability of this proposed
provision. In spite of providing this threshold for applicability of deduction
of tax, there may be cases where the tax payable on the total income of the
employees may be nil even after including the amount of pre-mature withdrawal.
For reducing the compliance burden of these employees, it is further proposed
that the facility of filing self-declaration for non-deduction of tax under
section 197A of the Act shall be extended to the employees receiving pre-mature
withdrawal i.e. an employee can give a declaration in Form No. 15G to the
effect that his total income including taxable pre-mature withdrawal from EPFS
does not exceed the maximum amount not chargeable to tax and on furnishing of
such declaration, no tax will be deducted by the trustee of EPFS while making
the payment to such employee.
Similar facility of filing self-declaration in Form No. 15H for
non-deduction of tax under section 197A of the Act shall also be extended to
the senior citizen employees receiving pre-mature withdrawal. However, some employees making pre-mature withdrawal may be paying
tax at higher slab rates (20% or 30%). Therefore, the shortfall in the actual
tax liability vis-à-vis TDS is required to be paid by these employees either by
requesting their new employer to deduct balance tax or through payment of
advance tax / self-assessment tax. For ensuring the payment of balance tax by
these employees, furnishing of valid Permanent Account Number (PAN) by them to
the EPFS is a prerequisite.
The existing provisions of section 206AA of the Act provide for
deduction of tax @ 20% in case of non-furnishing of PAN where the rate of
deduction of tax at source is specified. As mentioned earlier, there may be
employees who are liable to pay tax at the highest slab rate. In order to
ensure the collection of balance tax by these employees, it is also proposed
that non-furnishing of PAN to the EPFS for receiving these payments would
attract deduction of tax at the maximum marginal rate.
These amendments will take effect from 1st June, 2015.