Provident fund withdrawals before five years of completion of service will now attract income tax ranging between 10 per cent and 34.608 per cent.
A new provision in the Finance Act, 2015 that becomes effective from June 1 has mandated that premature withdrawals of retirement savings that exceed Rs 30,000 before completion of five years of service will be subject to tax deducted at source.
Tax would be deducted at the rate of 10 per cent if the subscriber provides the PAN number but the levy would go as high as the maximum marginal rate of 34.608 per cent if the subscriber does not provide his PAN number at the time of withdrawal.
The Employees Provident Fund Organisation (EPFO) is understood to be discussing the issue with the finance ministry to reconsider the issue but it has issued a notification and detailed guidelines to field offices on tax deduction.
“Income Tax shall be deducted at source… if at the time of payment of the accumulated PF balance is more than or equal to Rs 30,000, with service less than five years,” Sanjay Kumar, financial adviser said in a missive.
Exemption from TDS would be given to senior citizens and subscribers with no taxable income, provided they submit the required forms, the EPFO has said, adding that in these cases too tax would be levied if the amount withdrawn exceeds Rs 2,50,000 and Rs 3 lakh, respectively.
However, workers 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 will also be exempt from paying TDS on such premature withdrawals.
TDS would also not be levied on transfer of retirement savings from one account of the member to another.