Finance Minister Nirmala Sitharaman in her 2023 Budget speech said tax deducted on EPF withdrawals has been reduced to 20 per cent from 30 per cent in non-PAN cases in Budget 2023. “Reducing the TDS rate from 30 per cent to 20 per cent on the taxable portion of EPF withdrawal in non-PAN cases,” said Sitharaman.
The change in PF rule with regard to the reduction in the TDS rate on EPF withdrawal will help those whose PAN is not updated with the records in the EPFO.
Shalini Jain, Tax Partner, EY India has been quoted in the Economic Times as saying that the requirement of the tax deduction on PF withdrawal for non-PAN holders has been removed to offer some relief to those falling at lower income slabs. Such individuals shall now be subject to TDS at 20 per cent as other no PAN cases, he noted.
ALSO READ:PAN-Aadhaar Linking Deadline: 48 Crore Linked So Far, Says CBDT Chairperson (abplive.com)
However, it is to be noted that other income tax rules will remain the same. As per the Income Tax Rule, if a PF or EPF accountholder applied for EPF withdrawal before the completion of five years of account opening, in that case, the whole withdrawal amount would be taxable and PF contribution above Rs2.5 lakh per annum will also be taxable.
If the PAN is available with the EPFO, then TDS is deducted at the rate of 10 per cent in case the withdrawal amount exceeds Rs 50,000. However, if PAN is not available, then TDS is deducted at 30 per cent. If you want to avoid TDS on the EPF withdrawal, an individual can also submit Form 15G/Form 15H. The Form 15G/Form 15H asks for PAN of the individual for avoiding TDS on EPF withdrawal amount.
In case, you withdraw any amount before five years, then the withdrawal amount is taxable. Moreover, if the Section 80C deduction is claimed on EPF, then the same would be taxable in the hands of an employee. Also, note that if you opt for EPF withdrawal after five years, then no TDS is deducted from the withdrawal amount. In fact, withdrawals are also taxable in the hands of an employee.