Do NRIs have to pay tax on PF withdrawal?

​Complete NRI PF withdrawal is authorised if the employee is leaving India and relocating permanently overseas. In addition, you can avoid paying taxes when cashing out your retirement account balance up to the termination date if you have a minimum of 5 years of continuous work in India.

You may have put away a sizable amount of money in your Employee’s Provident Fund accounts in India during your work. Over time, your contribution, your employer’s contribution, and any interest gained might add to quite a bit. However, because this sum may get you off to a flying start in a new country or be invested for greater profits, it would be a mistake just to let it go.

If you leave India for an extended period, you may be considered a Non-Resident Indian (NRI) for tax purposes. If you no longer work in India, you are no longer entitled to make EPF contributions following the Employees’ Provident Fund Act.

And now you’re wondering what to do with the funds you’ve accumulated in your EPF account, which you must withdraw due to the taxation policy.

Taxability of PF Withdrawal for NRIs

Once an individual reaches age 58 or retires, they can withdraw their EPF balance. Participants may also withdraw their entire investment and any interest earned on it if they have been unemployed for more than two months.

However, you are not in any of the above-mentioned situations because you are leaving India while still employed. For example, suppose you plan to become a non-resident Indian (NRI).

In that case, you can shut your EPF account and take your whole amount immediately without waiting for the necessary period. Contributions from both you and your employer, plus any interest accrued, are included.

You must, however, provide evidence that you are leaving India to work and settle overseas, as is customary with financial matters. And you have to commit to the EPF withdrawal tax policy.

Taxation on NRI PF Withdrawal

Individuals can save money by contributing to an EPF account and taking the deduction allowed by Section 80C of the Income Tax Act. Withdrawals from the EPF fall into two distinct categories: PF withdrawal taxable and nontaxable.

If you are a non-resident member of the Employees’ Provident Fund Organisation (EPFO), surcharge and cess will apply to your TDS (Tax Deducted at Source).

If a PF account is connected to a valid PAN, the TDS rate will be 30% or the tax rate stated in the Double Taxation Avoidance Agreement (DTAA), whichever is more advantageous to the PF member. This is relevant under Section 195 and Section 90 of the Internal Revenue Code.

On all sums for a non-resident account holder, TDS will be deducted at the applicable rate. However, resident account holders are free from TDS deductions when the total is less than ₹5,000.

Taxability of PF Withdrawal Before The Duration of 5 years

Withdrawing from your employee pension fund (EPF) before completing five years of continuous employment will result in a tax withholding obligation. There are five years of service in total, and they include your time with the previous company.

If your total employment with both employers is five years or more, no TDS will be taken from your EPF balance when you transfer it.

Temporary Employee Tax on PF withdrawal

Suppose you have been employed for a temporary role or are under contract for a specific time. You are not on the permanent payroll during this time, and your employer is not required to make EPF contributions on your behalf. After some time, the employer begins contributing to your EPF on your behalf.

You resign after five years of service. However, this period includes the months you were not on permanent rolls. Thus your employer will withhold TDS from your EPF withdrawal as the 5-year term is not yet complete.

Conclusion

When migrating and beginning a new life, it is usually preferable to tie up loose ends and have financial control, lest you stumble across them. Therefore, withdrawing the NRI EPF amount and closing the account is not only a prudent financial move if you have a small corpus, but it also means you will have one less item to worry about.

Key Takeaways

The primary factors of the NRI PF withdrawal plan are as follows.

• If an employee has been employed for more than 5 years, then they do not have to commit to the taxability of PF withdrawal.
• In case the employee takes exit before completion of 5 years tenure, then they have to commit to tax as per the applicable slab rate.