The government may have rolled back its budget proposal to tax employees provident fund (EPF) withdrawals, however, a number of employees, especially in the lower pay bracket, are still shelling out a hefty tax deducted at source (TDS). Eight months before the budget, a new section was quietly inserted in the Finance Act of 2015, to tax PF withdrawals over Rs30,000 where service is less than five years.
According to the new provision, any withdrawal over Rs30,000 by an employee having served for less than five years will be taxable at source. If a permanent account number (PAN) is submitted, then tax is collected at10%. There is no tax if a declaration is filed in form 15G or H, saying that the employee's total income is not taxable. However, if there is no PAN, then tax will be straightaway deducted at 34.608%.
This is where the workers drawing low pay are being hit. Sources say many such workers change jobs within smaller periods. They also do not have PAN cards since their salary is too low to be taxable, and are also in need of PF money to meet immediate needs in case they lose a job.
However, even if their income may be much below the taxable limits, workers have to shell out tax at 34% on PF withdrawal, said a source. The notification issued by Employees Provident Fund Organization (EPFO) in this regard says that no form 15G or H may be accepted if the withdrawal is more than Rs2,50,000. This means withdrawals beyond this limit will lead to a 10% tax at the least.
PF withdrawn for termination of service due to ill health of employee, discontinuation of business or any other reason beyond the employee's control are exempted from the TDS rule. Advances for reasons allowed under PF rules are not taxable too.
Sources say even if the well-off may not have a problem in shelling out 10% as TDS, it is the poor who do not have a PAN at all and are likely to be hit.
Figures related to the withdrawals taxed in the Nagpur office over a month show that nearly half the employees who had to shell out 30% as TDS had PF benefits within Rs50,000. Since June, over 100 withdrawals have come within the tax bracket, with total tax of around Rs 50 lakh collected.
Sources say that the amount may be minuscule, but it is the lower rung employee who is the worst hit. Many employees were left shocked when a sizeable amount was deducted as tax but had no choice, said a source requesting anonymity.
Around 5,000 withdrawals take place in a month in Nagpur, but the average amount taken back during such withdrawals stands at Rs50,000, a source said.
IN A NUTSHELL
Finance Act amended in June to tax PF withdrawals
Withdrawals over Rs30,000 after less than 5 years service come under tax net
No tax if form 15H or G declaring total income to be non-taxable
If PAN is shown, TDS is 10%
Without PAN, 34% tax is deducted
Many lower rung employees have no PAN
They have to pay tax even if income much within limit