EPFO introduces Form 121 for EPF withdrawal tax management

The Employees' Provident Fund Organisation (EPFO) has introduced Form 121, which replaces the previous Forms 15G and 15H under the Income-tax Act and Income-tax Rules for managing tax deductions during provident fund withdrawals.

Subscribers using Form 121 to avoid Tax Deducted at Source (TDS) must meet specific criteria. Form 121 is intended for taxpayers whose estimated total tax liability for the relevant year is nil. It is important to note that submitting the form does not automatically make a withdrawal tax-free; users must consider their total income from all sources, including salary and interest, to ensure they meet eligibility requirements.

Key considerations for EPF subscribers include:

• Service Period: Withdrawals made before completing five years of continuous service may attract tax. Transferring balances between employers can help maintain service continuity.

• Withdrawal Thresholds: TDS generally applies to premature withdrawals exceeding Rs 50,000. If a valid Permanent Account Number (PAN) is provided, the TDS rate is typically 10%, though this is subject to specific provisions and exceptions.

• Total Tax Liability: The amount deducted at source is not necessarily the final tax payable, and subscribers should assess their overall tax position rather than viewing the withdrawal in isolation.