Do NRIs have to pay Tax on PF Withdrawal? | Tata AIA Blog (2024)

FAQs

Do NRIs have to pay Tax on PF Withdrawal? | Tata AIA Blog? ›

Tax Implementations on NRI PF Withdrawal Before 5 Years

If you have completed 5 years of service, you can withdraw your EPF corpus with no tax. If a withdrawal is made before the completion of 5 years of service, additional TDS is levied. The TDS is deducted at the rate of 10% if you furnish your PAN and 34.608% if you are not able to furnish your PAN.

Yes, an NRI has to file an income tax return in India on income earned in India. NRIs have to pay tax on income that accrues or arises in India. NRIs also need to pay tax on income that is deemed to accrue or arise in India. Money received or deemed to be received in India is taxable.

Withdrawals before completing five years of continuous service are taxable. The amount is added to your income for the year and taxed according to your income tax slab. After 5 Years of Continuous Service: Withdrawals after completing five years of continuous service are exempt from tax.

Consequently, if an Employee Provident Fund Account can be classified as Social Security, an India Provident Fund Schedule will escape U.S. taxation. Anyone wishing to take a position that a Provident Fund Scheme is not subject to U.S. tax under the U.S.-India tax treaty must timely claim a treaty position.

Exemption through Specified Bonds: Exemption from capital gains tax for NRIs is applicable by reinvesting the amount in specified bonds within a specified timeframe under Section 54EC. The maximum exemption that can be claimed by investing in these bonds is ₹50 lakhs.

Tax treatment

An NRE account is tax-free (no income tax, wealth tax, or gift tax) in India. On the other hand, the interest earned in NRO accounts and credit balances is subject to respective income tax bracket.

NRI or not, every individual must file a tax return if their income exceeds Rs 2,50,000. But note that NRIs are only taxed for income earned/collected in India.

The income tax provisions for NRIs are not subject to age, gender, or any other specification. Therefore, you will have to pay the necessary tax for the income earned in India beyond ₹2.5 lakhs.

Unlike residents, NRIs are not required under the law to pay tax on overseas earnings or declare foreign assets. However, if they overstay - spending more than 181 days in a year in India - tax and disclosure regulations, as related to residents, apply to them.

Can I withdraw my PF if I am going abroad? ›

In case the employee is leaving India and settling permanently abroad, complete PF withdrawal is allowed. Withdrawal is also allowed if the employee gets a job abroad.

TDS is deducted @ 10% on EPF balance if withdrawn before 5 years of service, and the amount is above Rs.50,000. Remember to mention your PAN at the time of withdrawal. If PAN is not provided, TDS shall be deducted at the highest slab rate of 30%.

Withdrawal Limits: According to the updated regulations, PF account holders can withdraw an amount equivalent to three months of their basic salary plus dearness allowance or 75% of the net balance in their EPF account, opting for the lower of the two.

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.

Once an NRI returns to India and resumes employment, they can continue contributing to their EPF account as usual.

The FBAR is Foreign Bank and Financial Account Reporting Form (aka FinCEN Form 114). While the EPF is a form of pension, generally the EPF is reportable on the FBAR. In recent years, the IRS has significantly increased enforcement of foreign accounts compliance, including trusts and pensions.

An NRI is not liable to pay tax on income earned outside India. However, an NRI returning to India gets a NOR status, eventually converted to a ROR status. A resident Indian is liable to pay tax on global income under the income tax laws. Therefore, one must understand the taxation implications when returning to India.

NRO account is for your local income. So proceeds of EPF can be deposited in NRO account. However, it cannot be deposited in NRE account.

The withdrawals from EPF are considered income for the employee and should be mentioned under the head 'Income from salary'. If you have withdrawn money from your EPF account, then you may report the same at the time of filing the ITR by selecting 'Section 10(12) Recognized Provident Fund' on the portal.