The deadline to file an income tax return (ITR) for the financial year 2019-2020 will end on December 31, 2020. While it is important to take care of every detail while filing ITR, taxpayers should also mention if they have withdrawn money from the Employees' Provident Fund (EPF) during FY2019-20. This must be done despite the amount withdrawn being outside the tax net.
According to Sandeep Sehgal, director- taxes and regulatory, AKM Global, a consulting firm, income received from EPF withdrawal, even in cases where it is exempt and will have no tax effect, need to be reported in Schedule EI of the ITR form.
"The purpose of reporting is to facilitate the tax authorities to reconcile the expenditures commensurate to the income of the taxpayer during assessments. Hence, it is anyways advisable to do that. The non-disclosure may attract penalties for non-reporting or incorrect reporting," Sehgal opines.
Employees' Provident Fund Organization, or EPFO, the nodal agency that monitors EPF contributions, this year allowed subscribers to make a partial withdrawal or 'advance' withdrawal from their EPF corpus to help tide over hardship caused by coronavirus.
According to a new EPF rule, subscribers can withdraw 75 percent of the balance or three months' wages, whichever is lower, as a non-refundable advance from their account.
The subscribers can put a claim for 'advance' withdrawal via EPFO's unified portal -- unifiedportal-mem.epfindia.gov.in. The claim is then forwarded to the employer for approval. Once approved, the amount is credited to the subscriber's account.
Previously, non-refundable advances were permitted only for specified purposes such as purchase/construction of the house, repayment of a loan, non-receipt of the wage for two months, the marriage of self/daughter/son/brother, for medical treatment of family members, etc.
According to the notification, employees working in establishments and factories across India, who are members of the EPF Scheme, 1952, are eligible for the benefits of non-refundable advance.
These withdrawals are taxable in some instances and exempt under other instances.
If a person withdraws EPF post completion of five-year service, then it’s tax-free. But, if the person withdraws it without completing the five-year tenure, in that case, it’s taxable with a few exceptions such as employment termination and medical emergencies.
The EPF amount is also taxable if there is a break in the contribution to the account for five continuous years. In that case, the entire EPF amount is considered as taxable income for that financial year.
(Edited by : Jomy)