Do NRIs have to pay tax on PF withdrawal?


I am an NRI and want to withdraw my Employees’ Provident Fund (EPF) balance from India. I had completed five years of service with my previous employer. Would there be any additional tax deduction at source (TDS) as funds would be transferred to an NRO account?

—Name withheld on request

An employee (Indian national) is eligible to withdraw PF under any of the following circumstances:

(a) On retirement from service after attaining the age of 55 years; (b) On retirement on account of permanent and total incapacitation; (c) On migration from India for permanent settlement abroad; (d) On being unemployed in India for more than 2 months

An employee is eligible to withdraw from Pension Scheme (EPS) if he has not rendered service of 10 years or more on the date of cessation of employment as lump sum amount. The employee will be entitled for withdrawal benefit or may opt for scheme certificate. If an employee has rendered service of 10 years or more, the employee will be eligible for monthly pension from EPS.

Thus, in your case, you are eligible to withdraw lump sum amount from EPS if your total contributory service in India is less than 10 years.

As you have continuous service of 5 years or more in India, the withdrawal of accumulated balance up to date of cessation will not be taxable in India.

Any interest on employer’s contributions and employee’s contributions after the date of cessation of employment until the date of withdrawal is taxable in India.

As per the guidelines, if an individual withdraws provident fund after 5 years, there should not be any TDS at the time of withdrawal. But the EPFO may deduct tax on the interest earned after the date of cessation of employment.

I am an NRI and have non-resident ordinary (NRO) and non-resident external (NRE) bank accounts in India. I want to know how I can transfer my NRO balance to my NRE account in same bank.

—Name withheld on request

Under the exchange control law, you may transfer balance from your NRO account to your NRE account up to $1 million per financial year subject to documentation requested by the bank. The bank may request for documentary evidence to substantiate that Income-tax has been paid in India on the amount to be remitted.

Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at [email protected]

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