Retirement fund body EPFO will deduct tax at source from next month on PF withdrawals where accumulations are over Rs30,000 and the employee has worked less than five years.

"The Finance Act, 2015 (20 of 2015) has inserted a new section 192A regarding the payment of accumulated provident fund balance due to an employee. The provision shall take effect from June 1, 2015," an EPFO circular said.

"Income Tax shall be deducted at source (TDS)... if at the time of payment of the accumulated PF balance is more than or equal to Rs30,000 with service less than 5 years," it added.

According to the circular, TDS will be deducted at the rate of 10% provided PAN is submitted.

However, in case Form 15G or 15H is submitted by the member, then no TDS shall be deducted. These forms are to declare that their income would not be taxable after receiving payment of their PF accumulations from EPFO.

While Form 15H is submitted by senior citizens (above 60 years of age), Form 15G is submitted by claimants below the age of 60 years.

As per the circular, TDS will be deducted at the maximum marginal rate of 34.608% if a member fails to submit PAN or Form 15G or 15H.

However, there are certain exceptions to deduction of TDS by EPFO. TDS shall not be deducted in case of transfer of PF from one account to another PF account.

Besides, it will not attract TDS if the employee is terminated from service due to ill health of member and discontinuation or contraction of business by employer.

EPFO will also not deduct TDS if the employee withdraws PF after a period of five years of continuous service, including service with former employer.

The body will also not deduct TDS where payment is less than Rs30,000 but the member has rendered service of less than 5 years.

It would also not deduct TDS if the employee withdraws an amount more than or equal to Rs30,000 with service of less than 5 years but submits Form 15G/15H along with his/her PAN.

The proposal to deduct TDS on PF withdrawals was part of the Finance Bill, 2015.

It would also not deduct TDS if the employee withdraws an amount more than or equal to Rs30,000 with service of less than 5 years but submits Form 15G/15H along with his/her PAN.

The proposal to deduct TDS on PF withdrawals was part of the Finance Bill, 2015. 

According to media reports, the government may however reconsider this decision. 

"The government is mulling two options to hold back the implementation of this tax, after the PF office pointed out that it would be unfair to tax retirement savings of people whose income is less than the personal income tax threshold of Rs2.5 lakh," said a senior government official. The finance ministry, the official said, may issue a directive to put the implementation of this clause in the Finance Act in abeyance or raise the Rs30,000 trigger for tax deductions from PF accounts.