Provident fund (PF) withdrawals up to Rs. 50,000 won't be tax deduction at source from June 1, according to a government notification. The limit is Rs. 30,000 as of now.
"The Finance Act, 2016 has amended section 192A of Income Tax Act, 1961 to raise the threshold limit of PF withdrawal from Rs 30,000 to Rs 50,000 for Tax Deducted at Source (TDS)," the notification said, according to PTI.
The tax was introduced to discourage PF subscribers from premature withdrawal since it is a benefit meant to accrue on retirment.
Currently, tax is deducted at source at the rate of 10 percent on withdrawals if the subscriber has furnished PAN. If the subscriber submits Form 15G or 15H, then the entire withdrawal is exempt from tax.
The hike in limit to Rs. 50,000 is expected to bring relief to about 40 million subscribers of the Employees' Provident Fund Organisation (EPFO). The retirement fund body manages a corpus of over Rs 8.5 lakh crore.
The latest decision marks yet another significant development for PF subscribers. In March this year, the EPFO took a decision to pay interest on inoperative accounts numbering about 9 crore with an amount of over Rs. 30,000 crore.
The move was a reversal of a decision by the UPA government in 2011 not to pay interest on inoperative accounts to prod subscribers to either withdraw the money or transfer their balance in an inoperative account to an active one.
In April, the Central government unconditionally withdrew a proposal to restrict withdrawals of PF amount in response to a countrywide backlash.
"We are cancelling the February 10 notification [restricting complete withdrawal of PF savings] and the old system will continue. This was a demand of the workers and I have announced the roll-back in their interest," Labour Minister Bandaru Dattatreya had said.