Tax free PF withdrawal threshold may rise upto 2 Lakh
For PF withdrawals done before 5 years of continuous service, EPFO cuts a tds of 10% and you are required to pay remaining taxes on the EPF amount according to the tax bracket you fall into. For eg. if you come into 30 % tax slab, then you need to pay the remaining 20% (after tds cut of 10%) while filing the income tax return. However, if the total PF amount withdrawn is less than Rs 50000, then there is no tax liability and no TDS cut. The good news is that this threshold limit of 50000 may increase to 2 Lakh in the upcoming Union Budget.
Labour Ministry has proposed a increase in the Tax free PF withdrawal threshold from the current Rs 50000 to Rs 2,00,000. “No tax is required to be deducted on provident fund withdrawal of less than ₹50,000. However, even this limit appears to be too low and may be enhanced to ₹2 lakh keeping in view the deliberations in the meetings of the Central Board of Trustees,” EPFO wrote in a recent letter to the Labour Ministry, which has since been forwarded to the Finance Ministry for consideration in the Union Budget 2017-18. If the Finance Ministry approves this proposal, anyone with PF savings of less than 2 Lakhs can withdraw his PF money before 5 years of continuous service without attracting any taxes.
Please note that governmnet has increased the tax free PF withdrawal threshold last year from 30,000 to 50,000.
Another proposal from the Labour Ministry is to remove tax deduction of 34.608% (called maximum marginal rate) in cases when PAN card details are not provided. As of now, 34.608% TDS is deducted for employees who do not provide PAN card details instead of the usual TDS of 10%.