The Provident Fund or PF as it is known popularly, is an retirement benefit scheme tat was started by the government several years ago which allows all employees to create savings for their life post retirement. According to financial experts, it is unadvisable to withdraw your Pf before you retire. As per the regulations set, a fixed 12% of an employee’s monthly salary will be directed into their PF fund, along with their employer contributing an equal amount as well. Each year, the EPFO (Employees’ Provident Fund Organisation) declares the rate of interest which will be applicable on the collected amount in one’s provident fund. Employees can withdraw their PF amount only after 2 months after leaving an organization. For withdrawal, an application form needs to be filled b the individual and submitted to the PF office or they can also do so via their employer. Here are 5 important details which one must absolutely be aware of when it comes to Provident Fund.
Encouragement of Long-term Savings
In order to encourage employees to maintain savings on a long term basis, several laws have been brought into effect by the government to help employees in their endeavor. In case an individual has withdrawn funds from their PF account after 5 years of non-stop employment, they will not be liable for any tax deduction. Also, if the employee has worked with varied employers over the years and their PF account maintained with an ex-employer is simply transferred to the PF account opened by the new employer, it will count as a continuous employment. Also, in case the individual has lost their employment due to reasons outside their control such as shutting down of the business or ill-health, then the PF withdrawal made in this case will also not be liable for any tax, regardless of the duration of the individual’s employment.
Withdrawal Before 5 Years is Taxable
If an individual has withdrawn the funds from their PF account before a duration of 5 years of continuous employment, then the Pf funds will attract tax in the on-going financial year. Consequently, the Pf amount must be included in your tax return for next year’s assessment.
An employer is bound by law to contribute an equal amount to their employee’s PF Fund as is being deducted from the individual’s monthly income. What your employer contributed towards your PF and the interest that you earn on it will be added to your income and tax will be levied accordingly.
Benefit Claimed on PF Contribution
In case an employee has made benefit claims on their PF contribution under Section 80C, the same will be taxable as salary. If they have earned interest on their own PF contribution, the same will also be taxed under ‘income from other sources’ according to the applicable tax slabs.
TDS (Tax Deducted At Source)
If an individual has withdrawn their PF funds after 5 years of continuous employment, the withdrawal will not attract any tax or TDS. In case the employment period is below 5 years and the employee has not submitted their PAN number to EPFO, then a 30% deduction is done towards TDS. If the employee has submitted their PAN number with Form 15G/15H, then there is no TDS deduction. If the PAN number has been provided but not the Form 15G/15H, then TDS is deducted at the rate of 10%. The Form 15H or 15G has been released for the purpose of preventing TDS deduction for employees whose income is below the cut-off for tax deduction.