Members of private provident fund trusts need not have to pay tax on premature withdrawals if the amount is either less than Rs. 30,000 or their tax liability is nil even after including the withdrawn sum to their income. A proposal to this effect is contained the Budget 2015-16. As per existing provisions in respect of such premature withdrawal, the trustees of the recognised provident funds (trusts) shall deduct tax as computed at the time of payment.
Under the existing EPF & MP Act (Employees’ Provident Funds and Miscellaneous Provisions Act), withdrawal shall be taxable if the employee makes withdrawal before continuous service of five years (other than the cases of termination due to ill health, closure of business, etc) and does not opt for transfer of balance to new employer. It is proposed to insert a new provision in the Act for deduction of tax at the rate of 10 per cent on premature withdrawal from Employees Provident Fund Scheme (EPFS).