Tax to be deducted@10% on premature taxable withdrawal from employees provident fund [Section 192A] under Deduction of Tax at Source :

(1) 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.

(2) 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, 1961 are termed as Recognised Provident fund (RPF) under the Act.

(3) Part A of the Fourth Schedule to the Income-tax Act, 1961 contains the provisions relating to RPFs. Under the existing provisions of Rule 8 of Part A of the Fourth Schedule, the withdrawal of accumulated balance by an employee from the RPF is exempt from taxation.

(4) For the purpose of discouraging pre-mature withdrawal and promoting long term savings, if the employee makes withdrawal before continuous service of five years (other than the cases of termination due to ill health, contraction or discontinuance of business, cessation of employment etc.) and does not opt for transfer of accumulated balance to new employer, the withdrawal would be subject to tax.

(5) Rule 9 of Part A of the Fourth Schedule provides the manner of computing the tax liability of the employee in respect of such pre-mature withdrawal. In order to ensure collection of tax in respect of such pre-mature withdrawals, Rule 10 of Part A of the Fourth Schedule casts responsibility on the trustees of the RPF to deduct tax as computed in Rule 9 at the time of payment.

(6) Rule 9 provides that the tax on withdrawn amount is required to be calculated by recomputing the tax liability of the years for which the contribution to RPF has been made by treating the same as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 provident fund schemes, are generally a part of the employer group and hence, 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. However, it may not always be 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.

(7) New section 192A has, therefore, been inserted with effect from 1st June, 2015, to provide for deduction of tax @10% on premature taxable withdrawal from employees provident fund scheme. Accordingly, in a case where the accumulated balance due to an employee participating in a recognized provident fund is includible in his total income owing to the provisions of Rule 8 of Part A of the Fourth Schedule not being applicable, the trustees of the Employees Provident Fund Scheme, 1952 or any person authorised under the sch eme to make payment of accumulated balance due to employees are required to deduct income -tax @10% at the time of payment of accumulated balance due to the employee.

(8) Tax deduction at source under this section has to be made only if the amount of such payment or aggregate amount of such payment of the payee is Rs 30,000 or more.[ wef from 1st June 2016 – amount limit has been increased to Rs 50,000/- or more (FY 2016-2017 / AY 2017-2018 )]

(9) Further, any person entitled to receive any amount on which tax is deductible under this section has to furnish his PAN to the person responsible for deducting such tax. In case he fails to do so, tax would be deductible at the maximum marginal rate.

(10) In order to reduce the compliance burden of these employees, the facility of filing self – declaration for non-deduction of tax under section 197A 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 employees provident fund scheme does not exceed the maximum amount not chargeable to tax. When the employee furnishes such declaration, no tax will be deducted by the trustee of Employees Provident Fund Scheme while making the payment to such employee.

(11) Likewise, facility of filing self-declaration in Form No. 15H for non-deduction of tax under section 197A has also been extended to the employees of the age of 60 years or more receiving pre-mature withdrawal.