Finance Minister Arun Jaitley in his Budget proposals tightened the income tax law on withdrawal of provident fund. Under the proposed tax law, provident fund withdrawal before five years of continuous service will attract a TDS (tax deducted at source) of 10 per cent.
While calculating the period of continuous service of five years, the previous employment can also be included, provided the balance from the previous PF account is transferred to the new PF account. Under tax laws, provident fund withdrawal after continuous service for more than five years is not taxed in the employee's hands.
The new proposal of TDS deduction will not be applicable in cases where the provident fund withdrawal is less than Rs 30,000. The new proposal will not apply to those persons who give a declaration that their income does not fall under the tax bracket, said Mayur Shah, executive tax director at EY.
In another provision, if PAN number is not quoted to provident fund authorities when seeking withdrawal, the entire amount will attract "maximum marginal rate" which is the income tax rate of highest slab of nearly 35 per cent.
Mr Shah says Budget proposals clear the ambiguity in tax laws on deduction of TDS by the Employee Provident Fund Organisation.
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