As an NRI, maintaining compliance with the rules and regulations governing NRIs is not easy, especially when it comes to cross-border finances. In this, one such scenario is EPF withdrawal for NRIs, where they face issues.
If you are also facing the same situation, then you are on the right page. In this blog, we will help you understand the taxation on PF withdrawal for NRIs. Additionally, the blog discusses the factors affecting NRI PF withdrawals. So, read on and gather all the information about it.
Key Takeaways
- EPF is a retirement cum savings plan scheme that Indian organizations provide to their employees. However, once you gain the NRI status, you cannot continue with your EPF account.
- There are certain EPF withdrawal rules for NRIs that you need to follow while taking out the entire amount from the account. Considering this, you need to prove your NRI status through your passport and visa and provide evidence of your overseas job.
- If you make the withdrawal after completion of five years of your job in India, and the amount is less than INR 50,000, no TDS is charged. However, if early withdrawal is made and the amount is more than INR 50,000, TDS is charged.
- Additionally, from the last date of your employment to your withdrawal date, any interest paid on the PF account is taxable in India.
- Further, you can simply transfer your EPF funds to your NRE/ NRO account using the online or offline application process.
What is Employee Provident Fund (EPF)?
Employee Provident Fund (EPF) is also referred to as Provident Fund (PF), is a retirement cum savings plan for the future that eligible organizations in India offer to their employees. This retirement scheme was introduced by the Indian government in 1952 to ensure that employees have a fixed source of income after retirement. Under this scheme, you and your employer need to contribute 12% of your monthly salary until you retire or leave your job. The PF schemes fulfill three objectives: providing pension benefits, generating wealth, and providing insurance.
However, once you become a non-resident Indian (NRI), you no longer hold your EPF account. Considering this, you need to withdraw the entire amount from your EPF account immediately. In this scenario, you do not need to wait for the EPF account's completion period.
This was all about your PF, or your retirement account for NRIs. Moving ahead, let's know the EPF withdrawal rules for NRIs.
EPF Withdrawal Rules for NRIs
As mentioned above, after becoming an NRI, you do not need to wait for the completion period to make a withdrawal from your EPF account. However, there are some EPF withdrawal rules NRIs must follow. These are:
- Eligibility: To withdraw from your EPF account, you must have NRI status. Additionally, you should have left India for a job or to settle overseas.
- Proof of Employment Abroad: You also need to provide proof of your overseas employment to withdraw the entire amount from your EPF account.
These are some of the EPF withdrawal rules for NRIs that must be met to close their EPF account. However, if over seven years you have not claimed your PF amount, it is transferred to the Senior Citizens' Welfare Fund. Additionally, it is difficult to retrieve after that. Moving on, let's look at the taxability of PF withdrawals for NRIs.
Taxability of PF Withdrawal for NRIs
The table below provides a quick overview of the taxability of PF withdrawal for NRIs:
| Sr. No. |
Scenario |
Taxability |
| 1. |
Before the completion of 5 years of service, the withdrawal amount is < INR 50,000 |
No TDS is charged. However, if you fall under the tax bracket, when filing your ITR, you need to mention your PF withdrawal amount in your income. |
| 2. |
Before completion of 5 years of employment, the withdrawal amount is > INR 50,000 |
There are two conditions in it:
- 10% TDS is charged if PAN is linked.
- 30% TDS is charged if PAN is not linked.
|
| 3. |
PF is withdrawn after completion of five years of employment |
No TDS is charged |
| 4. |
In case of a job change, the transfer of the PF account |
No TDS is charged. |
| 5. |
Tax charged on interest accumulated from the last date of your job to till the time you withdraw the amount |
As per the existing tax rules, it is taxable in India. |
These are some of the scenarios in which NRI PF withdrawals are taxed. Moving ahead, let's discuss the process for EPF withdrawal for NRIs.
What is the Process of EPF Withdrawal?
There are two ways to make your EPF withdrawal: online or offline. However, before you proceed with your withdrawal, make sure you have your passport and visa ready.
Online EPF Withdrawal Process
Unless your Universal Account Number (UAN) is linked to your Aadhaar card, you cannot use the online process. Considering this, you can withdraw the entire amount from your EPF account through the UAN unified portal. Additionally, through the Employees' Provident Fund Organization (EPFO) 's UMANG mobile application, you can also make a withdrawal.
Further, when filling out the application form, do not forget to choose "abroad settlement" as the reason for leaving your job. Also, upload the clear scanned copies of your required documents in PDF or JPEG format. Lastly, complete verification using the OTP sent to your email ID or mobile number, and receive the EPF amount in your bank account.
Offline EPF Withdrawal Process
If you are opting for the offline process, first download the EPF withdrawal form from the EPFO website. Additionally, you can ask your employer for this form. Considering this, there are two types of EPF forms available: Aadhaar-based and non-Aadhaar-based.
If your UAN is linked to your Aadhaar card, you can submit the filled form along with the required documents to your nearby EPFO office. If your UAN is not linked to your Aadhaar card, you need your employer's endorsement before submitting the form. Further, as in the online process, choose "abroad settlement" as the reason for leaving your job here as well.
This is how you can make an EPF withdrawal. Further, in both processes, once the verification is done within the next two weeks, your EPF balance is transferred to your bank account.
Now, moving further, let's know about the documents required for EPF withdrawal for NRIs.
Documents Required for EPF Withdrawal for NRIs
To process the EPF withdrawal, NRIs need to submit the following documents:
- Aadhaar Card linked with UAN. It is used for identity verification.
- PAN Card is used to certify the correct tax deduction rates.
- Cancelled cheque to know your bank details.
- NRO/ NRE bank account details to receive the EPF fund without any issues.
- Visa and passport copy to prevent complications and confirm your NRI status.
- Proof of date of exist from your last employment
- Date of birth proof
- Address proof of India
- Form 15CA and Form 15CB for tax clearance if the withdrawal amount is more than INR 5,00,000. It prevents you from paying unnecessary tax deductions.
These are the documents that NRIs need to submit at the time of EPF withdrawal, along with the application form. Moving ahead, let's know the tax scenarios for EPF withdrawal for NRIs.
Tax Implications for EPF Withdrawal for NRIs
If the EPF withdrawal is made after five years of constant service, then no tax is charged on withdrawal. However, if the EPF withdrawal is made before five years, TDC is imposed. Additionally, the tax liability is also affected by whether your PF account is linked to your PAN card. Apart from this, if there is a Double Taxation Avoidance Agreement (DTAA) between India and the other country where you reside, let's look at the different tax scenarios for EPF withdrawals for NRIs.
- PF Withdrawal After Completion of 5 Years: If you make the PF withdrawal after completion of 5 years of service in India, then on this withdrawal, no tax will be charged. Additionally, no TDS will be applicable.
- PF Withdrawal Before Completion of 5 Years: If you do not complete five years of service in India and make a withdrawal, then you need to pay tax. However, if the amount is less than INR 50,000, no TDS will be charged; if the amount is more than that, TDS will be imposed. Considering this, if your PF account is linked to your PAN card, 10% TDS is deducted; otherwise, 30% is deducted.
- Tax on Earned Interest on EPF Balance: After the last date of your job, to the withdrawal date, any interest paid on your EPF balance is taxable in India.
Further, to avoid paying taxes on the EPF withdrawal in two countries, you need to obtain a Tax Residency Certificate (TRC). For this, you need to fill out Form 10F with the income tax department. Once the Form 10FB is submitted, the TRC is issued by the Assessing Officer. Considering this, through TRC, NRI can take the DTAA benefit.
Conclusion
Managing your EPF account with an NRI status is quite difficult. It requires a proper understanding, along with following the EPF withdrawal rules for NRIs. Considering this, staying informed about EPF regulations, potential legislative changes, and tax laws is vital to maximizing the benefits of PF investments and securing your financial future.
Further, if you need more information or legal advice for your PF withdrawal, connect with Savetaxs. We have a team of tax experts who can better guide you on this and answer all your queries. Additionally, they can also assist you with better tax planning.
*Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA, or a professional tax expert from the Savetaxs team, as they are familiar with current regulations and can help you make accurate decisions and maintain accuracy throughout the process.
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