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TDS when money is taken out of the Employee Provident Fund

Recognized Provident Fund Definition

Connect 2 Payroll Compliance Solution in India by PF ESI Consultant in Ahmedabad. Certain designated employers must adhere to the Employees Provident Fund Scheme, 1952 (EPFS) in accordance with the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952). However, if certain requirements are met, these employers are also allowed to create and run their own private provident fund (PF) program.

Connect 2 Payroll Compliance Solution in India by PF ESI Consultant in Ahmedabad. The term Recognized Provident Fund (RPF) under the Act refers to provident funds created under a plan structured under the EPF & MP Act, 1952, or provident funds exempted under section 17 of the aforementioned Act and recognized under the Income-tax Act.

The RPF taxation system

An employee's withdrawal of their accrued amount from their RPF is tax-free under the current income tax act rules.

However, the employee's withdrawal is taxed if it occurs before five years of continuous employment (except from terminations for reasons like illness or business closure) and they choose not to transfer the accrued amount to a new employer.

Income calculation for TDS

According to rule 10 of Schedule IV-A, the trustees of the RPF must deduct tax as calculated in rule 9 of Schedule IV-A at the time of payment in order to guarantee tax collection for these withdrawals.

According to Rule 9 of Schedule IV-A of the Act, the tax on the amount that has been withdrawn must be computed by recalculating the tax liability for the years that the RPF contribution was made, treating it as if it had been contributed to an unrecognized provident fund.

Current challenge

For the purpose of calculating the amount of tax responsibility under rule 9 of Schedule-IV-A of the Act, the trustees of EPFS may occasionally be unable to obtain information about the employee's taxability, such as the amount of taxable income and tax payment for each year.