To discourage premature withdrawal of provident fund by subscribers, Union Finance Minister Arun Jaitley has proposed a tax on such early closures.
He has inserted a new provision in his budget papers that allows for tax deduction at source (TDS) on provident fund withdrawal before five years of continuous service.
Such withdrawal will attract tax at the rate of 10 per cent.
While calculating the period of continuous service of five years, the previous employment can also be included. There a rider though. The balance from the previous PF account must be transferred to the new PF account.
Under current 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, however, will not be applicable if the provident fund withdrawal is less than Rs. 30,000. This threshold limit is intended to reduce the “compliance burden of the employees having taxable income below the taxable limit,’’ said the budget papers.
Quoting PAN number has become mandatory for any subscriber who makes pre-mature withdrawal. If the PAN number is not quoted at the time of withdrawal, the entire amount will attract the ‘maximum marginal rate’, which is the income-tax rate of highest slab of nearly 35 per cent.
The move is clearly aimed at promoting long-term saving. These changes will come into effect from June 1, 2015.
