Section 192A - Deduction of TDS on Withdrawal from Provident Fund (PF)

Introduction

The Employees' Provident Fund (EPF) was designed to be a retirement nest egg. It is forced savings that compound over decades to secure your old age. However, in the modern job market, it is often treated very differently. For many young professionals, the PF account acts more like an emergency fund or a bonus that they cash out every time they switch jobs.

While accessing your own money is your right, the Income Tax Department discourages this habit of premature withdrawal. To deter early exits and ensure tax compliance, the government introduced Section 192A.

If you withdraw your PF balance before completing five years of continuous service, the withdrawal is not tax-free. The EPFO is mandated to cut a chunk of your money as Tax Deducted at Source (TDS) before crediting it to your bank account. The shock of receiving a lower amount than expected is common, but it can be avoided. In this guide, we will explain the rules of Section 192A, the crucial 5-year timeline, and how you can legally stop the TDS deduction using Form 15G.

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Table of Contents

1. What is Section 192A?
2. When is TDS Applicable on PF Withdrawal?
3. The "5-Year Continuous Service" Rule Explained
4. Threshold Limit: When Does TDS Kick In?
5. Rate of TDS: The Danger of No PAN
6. Exemptions: When is No TDS Deducted?
7. How to Use Form 15G/15H to Save Tax
8. Taxability of PF Withdrawal in ITR
9. Consequences of PAN Not Linked with Aadhaar
10. FAQs

What is Section 192A?

Section 192A of the Income Tax Act governs the deduction of tax at source on the accumulated balance due to an employee participating in a recognized provident fund (EPF).

Simply put, if you decide to withdraw your PF corpus prematurely, the Trustees of the EPF (or the EPFO) act as the tax collector. They deduct the tax and pay the remaining balance to you. This ensures that the tax liability on this income is captured at the source itself.

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When is TDS Applicable on PF Withdrawal?

TDS is not deducted on every withdrawal. It is triggered only if you fail the "Continuous Service" test.

The Rule: TDS is applicable if you withdraw the accumulated balance before completing five years of continuous service.

• Scenario 1: You worked for 3 years at Company A and withdrew your full PF. TDS Applies.
• Scenario 2: You worked for 7 years at Company B and withdrew your PF. No TDS.

The "5-Year Continuous Service" Rule Explained

This is where most confusion lies. "Five years" does not necessarily mean five years in the same company.

If you change jobs but transfer your PF balance from the old employer to the new employer, the service period is aggregated.

• Example:

  1. Job 1: 2 Years. (Transferred PF to Job 2)
  2. Job 2: 2 Years. (Transferred PF to Job 3)
  3. Job 3: 1.5 Years. (Withdrew PF)
  4. Total Service: 2 + 2 + 1.5 = 5.5 Years.
  5. Verdict: Since total continuous service > 5 years, no TDS will be deducted, even though you were not in Job 3 for 5 years.

However, if you had withdrawn the amount after Job 1 (2 years), TDS would have been applicable then.

Threshold Limit: When Does TDS Kick In?

Even if you withdraw early (before 5 years), TDS is not deducted for small amounts.

The Threshold: ₹50,000.

If the aggregate withdrawal amount is less than ₹50,000, Section 192A does not apply.

• Case A: Withdrawing ₹40,000 after 2 years of service. Result: No TDS.
• Case B: Withdrawing ₹60,000 after 2 years of service. Result: TDS Deducted on full ₹60,000.

Note: The limit was earlier ₹30,000 but was enhanced to ₹50,000 to provide relief to low-income employees.

Rate of TDS: The Danger of No PAN

The rate of deduction depends entirely on your KYC status with the EPFO.

1. PAN is submitted: TDS is deducted at 10%.
2. PAN is NOT Submitted: TDS is deducted at the Maximum Marginal Rate (MMR).

The MMR is the highest tax slab rate applicable to an individual, which is 42.744% (30% Tax + Surcharge + Cess).

Warning: Never try to withdraw PF without linking your PAN. Losing nearly 43% of your corpus to taxes is a financial disaster.

Exemptions: When is No TDS Deducted?

TDS under Section 192A is NOT applicable in the following specific scenarios:

1. 5 Years Service: If you have completed 5 years of continuous service.
2. Small Amount: If the withdrawal amount is less than ₹50,000.
3. Transfer: If you are merely transferring the balance from one PF account to another (not withdrawing to the bank).
4. Health Issues: If the service was terminated due to the employee's ill health.
5. Business Closure: If the job was lost due to the contraction or discontinuance of the employer's business.
6. Form 15G/15H: If you submit a valid declaration (explained below).

How to Use Form 15G/15H to Save Tax

If you have worked for less than 5 years and want to withdraw ₹1 Lakh, TDS of ₹10,000 applies. But what if your total income for that year is below the taxable limit (e.g., ₹2.5 Lakhs)?

In such cases, you can submit Form 15G (for individuals < 60 years) or Form 15H (for seniors) to the EPFO while filing the withdrawal claim online.

• This form is a self-declaration stating that your total taxable income is nil.
• Once submitted, the EPFO will pay you the full ₹1 Lakh without deducting any TDS.

Taxability of PF Withdrawal in ITR

This is a critical distinction.

"No TDS" does not mean "Tax Free".

If you withdraw PF before 5 years, the entire amount becomes Taxable Income in your hands.

1. Employer's Contribution + Interest: Taxed under the head "Salary".
2. Employee's Contribution: Not taxed (since you already paid tax on it), but if you claimed 80C deduction on it in past years, that deduction is reversed and taxed.
3. Interest on Employee Contribution: Taxed under "Income from Other Sources".

Even if you submit Form 15G to stop TDS, you must declare this income in your ITR. If your total income crosses the slab, you have to pay tax later.

Consequences of PAN Not Linked with Aadhaar

In 2025, an "Inoperative PAN" is treated as "No PAN".

If your PAN is not linked with Aadhaar, and you apply for PF withdrawal:

1. The system will treat it as a case of non-furnishing of PAN.
2. TDS will be deducted at the frightening rate of the maximum marginal rate (approx 42.7%).
3. You cannot even claim the credit easily because your PAN is invalid.