Section 192A Of Income Tax Act: TDS On Provident Fund Withdrawals

The Employees Provident Fund (EPF) is a savings plan designed to facilitate investment and create a financial safety net for retirement. Savings made by individuals are subject to taxation under Section 192A of the Income Tax Act.

Occasionally, individuals may have a sudden need for immediate capital. In such a situation, those without alternate resources may opt to take an early withdrawal from their EPF. However, before beginning the withdrawal process, it is recommended to review S.192A of the Income Tax (IT) Act

Before we delve into the details of S. 192A, let us take a step back and discuss provident fund (PF) withdrawals. PF withdrawal refers to the removal of funds from a PF account by an individual. PF accounts are created by employers on behalf of employees. Both the employer and employee make monthly contributions to the account.

Upon withdrawal, the individual will be able to access the money they have saved in the PF account. This money can be used to meet a variety of expenses such as medical bills, education costs, or purchasing assets. PF withdrawal is subject to certain taxes, depending on the length of employment and the amount of money withdrawn.

Overview of S.192A

Section 192A primarily addresses the Tax Deducted at Source (TDS) on provident fund withdrawals. According to the recommendations made in the Finance Act, 2015, the Indian government added a new section to the IT Act. This new clause became operative on June 1, 2015.

This section applies to all individuals who are members of the EPF. The primary objective of this provision is to enable the tax department to collect tax at the time of withdrawal of the accumulated funds. This helps alleviate the waiting for the taxpayer to declare the income and pay the tax when filing returns. The tax is deducted at source at the prescribed rate and is credited to the government.

If your provident fund outflow exceeds ₹ 50,000, then TDS will be applicable. If it is less than ₹ 50,000, no tax will be withheld at the source. This article will describe everything you need to know about S.192A and its impact on PF withdrawals. Read on to know more details about this specific section.

Key Features of S.192A

Taxes shall be withheld by the regulations provided below

• The PF account owner has worked for a company for less than five years and
• The accrued balance at the time of withdrawal is more than ₹ 30000

The following rates will be used to calculate TDS:

• A 10% TDS deduction will be made if a PAN is provided. However, no tax will be withheld at the source if the provident fund holder submits Form No. 15G or 15H.
• Tax will be withheld at the destination at the highest marginal rate if an individual fails to give a PAN or Form No. 15G or 15H.

When the PF amount is paid to the employee, the tax will be held at source from the PF balance. TDS deduction on PF withdrawals will be applicable in the following situations:

• When a PF account holder transfers money from one account to another. This usually occurs when a person switches employers.
• When a person’s employment has ended for a variety of reasons. This includes incapacity due to illness or any other factor, the employer ceasing operations, the conclusion of a project, etc.
• When a provident fund owner terminates their employment with their former employer and withdraws their PF after five years of continuous service.
• You have served in an organization for less than five years.

TDS deductions u/s 192

Per S. 192, Tax Deduction at Source is to be taken when the salary is actually paid, and not when it is accrued. Taxes will be withheld whether salary compensation is received before the due date or paid after the scheduled payroll time.

If your salary is equal to or less than the basic tax exemption, then no tax is due and therefore, no TDS will be withheld. Even individuals without a PAN are subject to this rule

The following table outlines the basic exemption from TDS requirements based on age group:

• Minimum income for residents of India under the age of 60: ₹ 2.5 lakh
• Seniors 60 years and older but under 80 years old: ₹ 3 lakh
• Super Senior Citizens over the age of 80: ₹ 5 lakh

Exclusions to TDS Deduction u/s 192A

This list outlines the situations in which no tax is required to be withheld under S.192A of the IT Act.

• The EPF withdrawal amount does not exceed ₹50,000.
• The EPF withdrawal is done after a period of sustained employment of at least five years.
• The individual provides the PAN card and Form 15H or Form 15G.

Individuals must give careful consideration to the guidance provided in this section. They can comprehend the withdrawal process and minimize TDS deduction if they are familiar with this section. The reduction in their tax payments will allow them to maximize their savings.

Eligibility Criteria for Tax Deduction u/s 192A

The employer could be :

• Companies (Private or Public) (Private or Public)
• Firm
• Individuals
• HUFs\Trusts
• Partnership companies
• AOP, BOI
• Local Authority
• Every Artificial Judicial Person
• Cooperative organizations

Each of these employers must comply with the requirement of deducting and remitting TDS to the government on a monthly basis within the stipulated timeframe. A link between an employer and an employee is required for the deduction of Tax at source, as stated in S. 192 of the IT Act.

The status of the employer, such as HUF, firms, or companies, has no bearing on the deduction of taxes at source under this section. Furthermore, the employer’s staff count is unrelated while calculating and deducting TDS.

Documents required as per S.192A

You must provide certain documents to your employer to avoid having this TDS deducted from your hard-earned money. The most important of these is Form 15G or Form 15H, which declares that you are not liable to pay any taxes on the amount you are withdrawing. You will also need to provide a copy of your latest salary slip and bank account details.

TDS Certificate

A quarterly TDS certificate in form 16A must be given to the deductee by the tax deductor. The deductee and the deductor can view the same information in their documents 26AS and 16A, which can be downloaded from the TRACES Account.

To summarize, the documents required include but are not limited to

• Form 16A
• Form 16
• Form 26AS
• Bank statement
• A copy of the PAN card

Form 16A is a TDS certificate issued by the deductor and it contains details such as TDS amount and rate, deducted amount, etc. Form 16 is a certificate of salary payment issued by the employer and contains details such as salary, deductions, etc.

Form 26AS is the annual consolidated statement of Tax Deducted at Source (TDS). A bank statement is required to verify the details of the payment made. Lastly, a copy of the PAN card is required to verify the identity of the taxpayer. These documents are required to be kept for future reference and audit purposes.

How to comply with this tax provision

The implementation of S. 192A has generated numerous queries among individuals who wish to withdraw their PF money. The employer is obligated to make TDS deductions on any PF withdrawals made by an employee, as required by this taxation provision.

Complying with this tax provision can be a little confusing, but here is a breakdown of how to do it:

• If you are an employee and have started withdrawing your PF money, you must submit Form 15G or Form 15H to your employer.
• Form 15G is for individuals who are below the age of 60 years and do not have taxable income, whereas Form 15H is for individuals who are 60 years or older and do not have taxable income.
• Once your employer has received this form, they will stop deducting TDS from your PF withdrawals.
• However, it is essential to note that this only applies to withdrawals from the PF account. If you withdraw money from any other source, such as a bank account, TDS will still be deducted as per the norms prescribed in the Income Tax Act.

Common errors to avoid while complying with S.192A

You should avoid a few mistakes when complying with Section 192A of the Income Tax Act.

• First and foremost, keeping a tab on the TDS rate applicable to the withdrawal is essential. Make sure you are aware of the rates and only end up paying what is necessary.
• Other common errors include not updating PAN details with your employer
• Not providing correct information such as date of birth, name, salary breakup, etc., and
• Not providing other documents such as an appointment letter/ Form No 16 while claiming TDS exemption. It is essential to be aware of these details in order to receive any exemptions that may be available.
• Finally, ensure you have your paperwork in order before withdrawing your PF amount. This means that your UAN must be linked to your Aadhaar card and PAN card, which is essential for hassle-free withdrawal and will help ensure that the correct TDS rate is applied.

Examples with the context for salaried employees

Let us use some working examples to understand better how Section 192A impacts salaried employees.

Say, for instance, that the income of salaried individuals is ₹10 Lakhs per annum and their contribution to the EPF is ₹ 1 Lakh in a year. In such a case, only TDS will be deducted (in this case, 10%) on withdrawal that exceeds ₹ 50,000 as per Section 192A.

On the other hand, if the salary income of an individual exceeds ₹ 15 Lakhs in a year, then any withdrawal from EPF will be taxed at the standard rate (10%-30%), irrespective of the amount withdrawn, in accordance with S. 192A provisions.

So, you can see how Section 192A affects different types of salaried individuals differently depending upon their income level. Knowing your tax slab before deciding to withdraw your PF funds is essential.

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