PF account withdrawal: If you have withdrawn money from Provident Fund, then give information while filing tax returns, know why it is important
PF account: If you have withdrawn money from the Employees' Provident Fund (EPF) account, then you are required to give this information while filing your income tax returns. So, it is very important for you to know why.
PF account: If you have withdrawn money from the Employees' Provident Fund (EPF) during FY2019-20, then you must give this information while filing income tax returns. Even if the amount withdrawn is outside the tax net, there is a provision for exemption of withdrawal on completion of 5 years continuous service of the employee.
Know why it is important to give information about the withdrawn amount from PF account:
The government has allowed people to withdraw money due to covid-19 from PF account. Employees can withdraw 75% of their amount from the account or 3 months basic + DA whichever is less. For example, if you have an outstanding of Rs 1 lakh in your account and your Basic Salary is + Dearness Allowance is a total of Rs 20000 per month, then you will be eligible for withdrawal of up to Rs 60000. According to the Government guidelines, the employee is exempted from withdrawal tax under covid relief even if he does not complete 5 years of service. However, experts recommend giving information about the amount withdrawn while filing income tax returns.
Because if the Income Tax Department examines the account of the taxpayer and it is not included in it then it can be a mismatch, even if there is a provision for exemption in it. A special column is given to give the information in the form. This means that it is within the scope of the exemption but still it is necessary to show it. There is no penalty of any kind on this amount.
Rule on PF withdrawal of money if there is no job:
In case of Job change, the EPF of the employee will be transferred to another employer. In this case, while calculating the continuous period of the employee, the period of the new employee will also be added. But in many cases, there is a tax exemption on withdrawal of funds from PF, if the job has been lost die to the health of the employee or if the employer (company) has merged the business. Apart from this, according to EPF rules, a member can withdraw 75% of the total amount deposited during the job after one month of leaving the Job. If the person remains unemployed for more than two months, then he can withdraw the entire amount from the PF account.
On which occasion it is necessary to pay tax on PF:
Employee contribution, amount deposited by the employer and interest on both. You have to pay taxes on three of these four – employer’s contribution, interest on your contribution and interest on employer’s contribution.
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If you withdraw money from a PF account before five years, then you have to pay tax on it. In this case, you will have to pay tax on all four components of EPF. Tax on this amount will be calculated according to every year in which you have deposited the amount in the PF account.
The tax calculation on investment in your PF is also dependent on whether you have availed of deduction under section 80C of the Income Tax Act while filing ITR in that year.
According to the Income Tax Law, if you deposit the amount in PF, then your contribution will be exempted from Income Tax. Even if your income is Zero at this time, you will still have to pay income tax on withdrawing funds from the PF account. The reason for this is that the year in which PF was contributed, tax liability of you and your employer decreased.
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