The tax deducted on Employees’ Provident Fund (EPF) withdrawals has been reduced to 20 per cent from 30 per cent.
Finance Minister Nirmala Sitharaman has given Employees Provident Fund (EPF) account holders a huge sigh of relief as the new Budget rules suggest that TDS on EPF withdrawals has been reduced. The Finance Minister has reduced the TDS deduction on EPF accounts from 30 per cent to 20 per cent in the new Budget plan for 2023-2024.
The budget announcement saw FM Sitharaman talk about EPF holders where she suggested that account holders who do not have their PAN linked to the account will now have to pay less TDS during withdrawals. The current income tax laws suggest that TDS is deducted from the EPF if money is withdrawn within five years of opening the EPF account. It is deducted at 10 per cent if the withdrawal is done before five years of service.
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However, if Permanent Account Number (PAN) is not provided, TDS is deducted at the highest slab rate of 30 per cent if the employment service is less than five years. TDS is not applicable for withdrawals of amounts less than Rs 50,000.
Nirmala Sitharaman stated that the second proviso of Section 192A of the Income Tax Act stated that for any person who has an EPF account and does not get it linked to their PAN card, the tax on their fund withdrawal shall be deducted “at the maximum marginal rate”. However, many people who have a low income and do not have PAN make it difficult for them to pay 30 per cent TDS on EPF withdrawals. Therefore the Finance Minister announced the omission of the second proviso of Section 192A of the Act and changed the deduction to 20 per cent which is the same as that of EPF accounts linked with the account holder’s PAN card. The amendment, she stated, would be in effect from April 1.
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Speaking of EPF, any salaried professional can get a deduction of up to Rs. 1.5 lakh per financial year under Section 80C of the Income Tax Act and its allied sections such as 80CCC and 80CCD to reduce their taxable income. EPF amounts to a minimum of 12% of salary that is deducted by an employer and deposited in the EPF or other recognised provident funds. The current interest rate on the EPF is 8.5% p.a. This deduction is not available to partnerships, companies and other corporate bodies.
