Understanding Section 192A of the Income Tax Act: TDS on Premature Withdrawal from EPF Account

March 3, 2023

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Table of Contents

Introduction

Section 192A of the Income Tax Act, 1961 is a provision that requires employers to deduct tax at source (TDS) on premature withdrawal from Employees Provident Fund (EPF) account. This provision was introduced by the Finance Act, 2015 and came into effect from 1st June 2015. In this blog, we will discuss Section 192A in detail, including its applicability, rate of TDS, and other important aspects.

Applicability

Section 192A applies to all taxpayers who have prematurely withdrawn their EPF balance before completing 5 years of continuous service with the employer. In other words, if an employee withdraws his/her EPF balance before completing 5 years of continuous service, then the employer will have to deduct TDS under section 192A.

Rate of TDS

The rate of TDS under Section 192A is 10% if the employee has provided his/her PAN (Permanent Account Number) to the employer. However, if the employee has not provided his/her PAN, then the rate of TDS will be 34.608%.

Threshold limit

There is a threshold limit of Rs. 50,000 for applicability of TDS under Section 192A. In other words, if the premature withdrawal amount is less than Rs. 50,000, then the employer is not required to deduct TDS.

Exemptions

There are certain exemptions to the applicability of Section 192A. TDS is not required to be deducted if the employee withdraws his/her EPF balance after completing 5 years of continuous service with the employer. Moreover, TDS is not applicable if the employee withdraws his/her EPF balance due to termination of service for reasons beyond his/her control, such as ill health or discontinuation of business by the employer.

Procedure for TDS Deduction

The procedure for TDS deduction under Section 192A is similar to the procedure for TDS deduction under other provisions of the Income Tax Act. The employer is required to deduct TDS at the time of credit of EPF withdrawal amount to the employee’s account. The employer is also required to issue a TDS certificate in Form 16A to the employee.

Impact on Employees

Employees who withdraw their EPF balance before completing 5 years of continuous service with their employer will be impacted by Section 192A. They will have to bear the burden of TDS on their premature EPF withdrawal amount, which can reduce their net amount significantly. However, employees can avoid this by maintaining their EPF account for a longer period of time, which will not only help them save for their retirement but also avoid the TDS under Section 192A.

Impact on Employers

Employers will have to comply with Section 192A to avoid penalties and legal consequences. They will have to deduct TDS at the rate of 10% (if PAN is provided) or 34.608% (if PAN is not provided) on the premature EPF withdrawal amount and issue Form 16A to the employee. Moreover, employers will have to keep a record of TDS deducted and deposited with the government, which will require additional resources and manpower.

Challenges Faced by Employers

Employers may face challenges in implementing Section 192A due to the following reasons:

Difficulty in tracking the EPF withdrawal amount of all employees who have completed less than 5 years of continuous service.
Difficulty in obtaining PAN of all employees who have prematurely withdrawn their EPF balance.
Difficulty in calculating the correct amount of TDS to be deducted, especially if the withdrawal amount is a combination of employee and employer contributions and interest.

Steps to Avoid TDS under Section 192A

Employees can take the following steps to avoid TDS under Section 192A:

Maintain their EPF account for a longer period of time, i.e., complete 5 years of continuous service with their employer before withdrawing their EPF balance.
Withdraw their EPF balance in instalments instead of a lump sum amount to ensure that the amount does not exceed the threshold limit of Rs. 50,000.
Provide their PAN to their employer to ensure that the rate of TDS is only 10% instead of 34.608%.

Employers can take the following steps to ensure compliance with Section 192A:

Keep track of the EPF withdrawal amount of all employees who have completed less than 5 years of continuous service.
Obtain PAN of all employees who have prematurely withdrawn their EPF balance.
Calculate the correct amount of TDS to be deducted by taking into account the employee and employer contributions and interest.
Deposit the TDS with the government within the due date to avoid penalties and interest.

Penalties for Non-Compliance

Employers who fail to comply with Section 192A may face penalties and legal consequences, such as:

Penalty under Section 271C of the Income Tax Act for non-deduction or non-payment of TDS.
Interest under Section 201(1A) of the Income Tax Act for late deposit of TDS.
Prosecution under Section 276B of the Income Tax Act for wilful failure to deduct or pay TDS.

Conclusion

Section 192A of the Income Tax Act, 1961 is an important provision that requires employers to deduct TDS on premature withdrawal from EPF account. The provision aims to encourage employees to maintain their EPF account for a longer period of time. It is important for employees to understand the applicability of Section 192A and its rate of TDS, as well as the exemptions available. Moreover, employers should ensure compliance with this provision to avoid penalties and other legal consequences.

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Frequently Asked Questions (FAQs)

What is Section 192A of the Income Tax Act?

Section 192A of the Income Tax Act is a provision that requires employers to deduct TDS on premature withdrawal from the Employee Provident Fund (EPF) account.

2. Who is responsible for deducting TDS under Section 192A?
Employers are responsible for deducting TDS under Section 192A.

3. What is the rate of TDS under Section 192A?
The rate of TDS under Section 192A is 10% if the Permanent Account Number (PAN) is provided by the employee. If PAN is not provided, the rate of TDS is 34.608%.

4. What is the threshold limit for TDS under Section 192A?
The threshold limit for TDS under Section 192A is Rs. 50,000.

5. When is TDS to be deducted under Section 192A?
TDS is to be deducted at the time of payment of the EPF balance to the employee.

6. Is TDS applicable on EPF withdrawal after 5 years of continuous service?
No, TDS is not applicable on EPF withdrawal after 5 years of continuous service.

7. Can employees avoid TDS under Section 192A?
Employees can avoid TDS under Section 192A by maintaining their EPF account for a longer period of time, withdrawing their EPF balance in instalments, or providing their PAN to their employer.

8. What are the challenges faced by employers in implementing Section 192A?
Employers may face challenges in implementing Section 192A due to difficulty in tracking the EPF withdrawal amount of all employees who have completed less than 5 years of continuous service, obtaining PAN of all employees who have prematurely withdrawn their EPF balance, and calculating the correct amount of TDS to be deducted.

9. What are the penalties for non-compliance with Section 192A?
Employers who fail to comply with Section 192A may face penalties and legal consequences, such as penalty under Section 271C for non-deduction or non-payment of TDS, interest under Section 201(1A) for late deposit of TDS, and prosecution under Section 276B for wilful failure to deduct or pay TDS.

10. What steps can employers take to ensure compliance with Section 192A?
Employers can ensure compliance with Section 192A by keeping track of the EPF withdrawal amount of all employees who have completed less than 5 years of continuous service, obtaining PAN of all employees who have prematurely withdrawn their EPF balance, calculating the correct amount of TDS to be deducted, and depositing the TDS with the government within the due date.