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Do NRIs have to Pay Tax on PF Withdrawal?

NRIs may have to pay tax on PF withdrawal based on factors such as PF account tenure, tax regulations, and so on. Knowing about these tax implications can help you adhere to the tax laws for NRIs and stay out of legal tangles.

Being an NRI and adhering to rules and regulations for NRIs is not as simple as it sounds, especially when it comes to managing cross-border finances. A tax on PF withdrawal is one such area where most newly turned NRIs face difficulties. 
 

If you are going through the same, you are at the right place. We have curated this blog to help you understand the taxation on NRI PF withdrawal. We will discuss all the factors affecting your PF withdrawal, along with outlining the tax treaties you must adhere to. Keep reading!

Understanding the NRI Provident Fund (PF)

Provident Fund, also referred to as an Employees’ Provident Fund (EPF) is a mandatory retirement cum future savings plan offered by eligible organisations to their employees. Once they retire, employees can use this accumulated corpus to enjoy their retirement period comfortably. 
 

According to the PF regulations, every employee must contribute 12% of his basic monthly salary towards this fund. The employer also contributes the same amount to the PF account of his employee. Further, the accumulated amount generates interest on a yearly basis. 
 

Upon retirement, the employees have the option to withdraw this fund entirely or partially. 
 

In the case of NRIs, they can withdraw this amount entirely if they are leaving India permanently. The good part is they can avoid paying taxes when cashing out the PF account balance after completing five years of continuous employment in India. 
 

However, if you leave before completing five years of employment, then you will have to pay taxes on your PF withdrawal as per your tax slab.

Tax Implications on PF Withdrawal for NRI

 

 

As discussed above, PF accounts pave an excellent way to save money for the future. Note that this amount is subject to tax implications under certain conditions. However, you can save on taxes considering the deductions under IT Act Section 80C. 
 

Essentially, PF withdrawals fall into categories: Taxable and non-taxable PF withdrawals. 
 

For non-resident members of EPFO (Employees’ Provident Fund Organisation), cess and surcharge will be applicable to the TDS (Tax Deducted at Source). 
 

When your PF account is linked to a valid PAN, TDS will be 10% or the tax rate prescribed under the DTAA (Double Taxation Avoidance Agreement). The one which is more beneficial for you as a PF account holder  
 

In essence, TDS will be applied at the rate that is applicable to the PF account holder.

Tax Implementations on NRI PF Withdrawal Before 5 Years

Cashing out your PF account balance due to any reason before completing five years of continuous service will result in a tax obligation. If you withdraw an amount above ₹50,000 before five years, you will have to pay 10% TDS. 
 

But if you withdraw the amount post five years tenure, no TDS will be deducted from your PF account balance.

A Quick Table for Taxation on NRI PF Withdrawal
 

S.No. 

Scenario

Taxability

1.

Withdrawal amount is less than ₹50,000 before completing 5 years of continuous employment

No TDS. However, if you fall under the tax bracket, you have to declare the PF withdrawal in your return of income. 

2.

Withdrawal amount is more than ₹50,000 before completing 5 years of continuous employment

10% TDS, if PAN is linked.  

30% TDS, if PAN is not provided. 

3.

Withdrawal of PF after completing five years of continuous employment. 

No TDS. 

4.

Transfer of PF account in case of job change. 

No TDS. 

Final Thoughts

Tax on PF withdrawal for NRI is a multifaceted concept, which is important to understand to stay on the right side of the law. As discussed in the blog, it is impacted by factors such as tax laws, duration of employment, residential status of the taxpayer, and so on. 
 

In order to navigate the NRI PF withdrawal tax scenario successfully, it is advisable to stay informed and seek professional advice wherever possible. By doing so, you can make sure that your hard-earned income is managed and utilised wisely. Simply put, it will help you minimise your tax liabilities while improving your financial health. 
 

Remember, knowledge and smart financial planning, along with investments like NRI life insurance, will be your best allies in the journey of becoming a successful NRI.

Your Life, Your Legacy: Life Insurance Inquiry for Indians Abroad

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

How can NRIs reduce tax liability on PF withdrawal?

There are a few ways in which NRIs can reduce their tax liability on PF withdrawals. These include understanding tax regulations, utilising tax exemptions, and consulting with professional tax experts.

What happens on non-compliance to NRIs PF withdrawal tax regulations?

Non-compliance with the tax regulations in case of NRI PF withdrawal can lead to hefty penalties. Therefore, it is important to understand the regulations and adhere to them.

Is PF withdrawal taxable after 5 years?

No, PF withdrawal after the completion of five years is usually  tax-free.  However, it can be  subject to tax implementations under specific terms and conditions. Hence, it is advisable to stay updated regarding the tax regulations and consult a tax professional.

Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.