25 September 2014
Hi i was working with a MNC bank where my PF account was running for less than 5 yrs. Now i am working abroad with another company. Now I am am aware that if i withdraw the PF amount my previous employer (the MNC bank) would deduct tax (TDS) @ 30%. The bank's PF trust would keep the account open and pay interest for 6 months and within that time i am suppose to withdraw the PF or instruct them to transfer to the new employer's PF trust.
What should i do? I can't transfer PF as i am working abroad and i can't withdraw as i would pay TDS. How do i save tax. I don't need the PF money now.
Can I,
1. Withdraw the PF after TDS @ 30% and then claim for refund of the 30% deducted along with my IT filling next year?
2. Transfer the PF money to PPF account and hence escape the TDS and still enjoy receiving the interest? Please help. thanks,
26 September 2014
1. if you withdraw funds before completion of five years, you wont get refunds of the taxes deduct except for the excess tax credit that may arise on account of slab rates.
2. transferring to PPF wont give you any relief except to the extent of Rs 1.5 lakhs limit provided under section 80C.
i should not withdraw the PF before 5 years and let it remain with the previous employers PF trust till then. When i withdraw after 5 years, my previous employer would deduct 30% TDS. The tax so deducted can be claimed fully as refund through my IT return.
28 July 2024
You’re dealing with a common issue faced by many individuals who are working abroad and have an EPF (Employees' Provident Fund) account with a previous employer. Here's a detailed explanation to address your concerns:
### **Understanding EPF and Tax Implications**
1. **Tax Deduction at Source (TDS) on EPF Withdrawal:** - If you withdraw your EPF balance before completing 5 years of continuous service, the amount is subject to TDS. - The rate of TDS is 30% (plus applicable cess) if your PAN is not provided. If PAN is provided, the TDS is 10% (plus applicable cess). - However, if your total income, including the EPF amount, falls below the taxable limit, you can claim a refund for the excess TDS through your income tax return.
2. **Options to Handle EPF Balance:**
**Option 1: Withdraw the EPF Amount:** - **TDS Deduction:** If you withdraw the EPF balance, TDS will be deducted as per the applicable rates. - **Claim Refund:** You can claim a refund for the TDS deducted when you file your income tax return for the financial year in which the EPF was withdrawn. This is applicable if your total taxable income (including EPF withdrawal) falls below the taxable limit.
**Option 2: Leave EPF Account Open:** - **Interest Continuation:** If you don’t withdraw or transfer the EPF balance, the account will remain active, and interest will continue to be credited as per the EPF interest rates. - **Tax Treatment:** As long as you don’t withdraw the funds, the account remains active and interest is credited tax-free. However, when you eventually withdraw after 5 years, TDS at 30% will apply, and you can claim this back if your total taxable income is below the taxable limit.
**Option 3: Transfer to PPF Account:** - **Not Allowed:** EPF funds cannot be directly transferred to a Public Provident Fund (PPF) account. They need to be transferred to a new EPF account with a new employer or withdrawn.
3. **Future Tax Implications:** - **After 5 Years:** If you withdraw your EPF after 5 years of continuous service, the amount will not be subject to TDS, and it will be tax-free. - **Before 5 Years:** If you withdraw before 5 years, TDS will be deducted, but you can claim a refund if your overall income is below the taxable limit.
### **Steps to Take:**
1. **Ensure PAN is Provided:** To avoid a higher TDS rate, ensure that your PAN is provided to the EPF authority.
2. **Decide on Withdrawal Timing:** - If you do not need the funds immediately, leaving the EPF account active might be beneficial. This way, you can avoid TDS if you withdraw after completing 5 years of continuous service.
3. **File Your Income Tax Return:** If you opt to withdraw before 5 years, file your income tax return to claim any refund for excess TDS deducted.
4. **Seek Professional Advice:** Consider consulting a tax advisor for personalized advice, especially since you are working abroad. They can help you with specific details regarding tax implications and the best course of action.
### **Summary:**
- **Withdrawing Before 5 Years:** TDS at applicable rates will be deducted. You can claim a refund through your income tax return if your total income is below the taxable limit. - **Withdrawing After 5 Years:** No TDS will be deducted, and the amount will be tax-free. - **Transfer to PPF:** Not applicable; EPF cannot be transferred to PPF.
It’s crucial to carefully plan your withdrawal or transfer based on your financial needs and tax implications. If you have any further questions or need assistance with your tax return, consulting a tax professional is recommended.
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