Is a Provident Fund Withdrawal Taxable for an NRI?

Provident Fund (PF) in India serves as a mandatory retirement savings scheme designed to provide financial security to employees. Both the employee and their employer contribute a portion of the employee’s salary into this fund on a monthly basis. This accumulated corpus, along with accrued interest, aims to support individuals during their post-retirement years or in times of financial need. For Non-Resident Indians (NRIs), understanding the rules surrounding the withdrawal of these funds is important, especially concerning tax implications that arise from their change in residency status.

Taxability of Provident Fund Withdrawals for NRIs

The taxability of Provident Fund (PF) withdrawals for Non-Resident Indians (NRIs) is primarily determined by the duration of continuous service in India. If an individual completes at least five years of continuous service, the entire PF withdrawal is generally exempt from tax in India. This exemption applies to employee and employer contributions, and accrued interest.

However, if the PF withdrawal occurs before the completion of five years of continuous service, the withdrawal becomes taxable. In such cases, the employer’s contribution to the PF account, along with the interest earned on it, becomes taxable. Additionally, the interest accrued on the employee’s contribution for the years before the five-year mark is also subject to tax.

The provisions governing the tax exemption of Provident Fund withdrawals are outlined in Section 10(12) of the Indian Income Tax Act, 1961. This section specifies the conditions under which the accumulated balance from a recognized provident fund becomes payable without attracting income tax. It is important to note that any interest accumulated on the PF balance from the last date of employment until the withdrawal date may also be taxable in India.

Computing Tax on PF Withdrawals

When a Provident Fund withdrawal is deemed taxable due to not meeting the continuous service criteria, the taxable portion is added to the NRI’s total income for the financial year of withdrawal. This combined income is then taxed at the applicable income tax slab rates for the individual. The tax deducted at source (TDS) on PF withdrawals for NRIs is applied at specific rates.

If the withdrawal amount exceeds ₹50,000 and the employee has not completed five years of continuous service, a TDS of 10% is applied if the Permanent Account Number (PAN) is linked to the PF account. If the PAN is not linked, the TDS rate increases to 30%. A 4% cess and surcharge may apply to non-residents, though often not levied if TDS is deducted under Double Taxation Avoidance Agreement (DTAA) provisions.

Double Taxation Avoidance Agreements (DTAAs) prevent the same income from being taxed in both India and their country of residence. To claim DTAA benefits, an NRI must provide a Tax Residency Certificate (TRC) from their resident country’s tax authorities. Form 10F also needs submission, containing details like tax identification numbers and residency status. Submitting these documents allows the NRI to reduce their tax liability by availing lower tax rates as per the DTAA.

Required Documents and Withdrawal Application

Initiating a Provident Fund withdrawal as an NRI requires several documents and specific forms. A Universal Account Number (UAN) is essential, along with a valid Aadhaar and PAN card, both linked to the UAN. Bank account details (NRE or NRO) are necessary for fund disbursement, and a cancelled cheque is typically required to verify these details. Proof of identity and NRI status is mandatory, including a copy of the passport and a valid visa for the country of residence. An address proof, which could be a local Indian or foreign address, may also be needed.

Form 19 is used for final settlement, while Form 10C is required for pension withdrawal or a scheme certificate. Before applying, it is important to ensure that the UAN is activated and that all Know Your Customer (KYC) details, including bank account information, address, and nominee details, are updated on the Employees’ Provident Fund Organization (EPFO) portal. Accurate and consistent information helps prevent processing delays. If the withdrawal amount exceeds ₹5 lakh, Forms 15CA and 15CB may also be required for tax clearance purposes.

Submitting the Withdrawal Application and Post-Submission Steps

Once documents are prepared and forms filled, the Provident Fund withdrawal application can be submitted. The primary method for NRIs is online submission through the EPFO portal or UMANG App, provided the UAN is linked with Aadhaar and KYC details are verified. After logging in, the applicant navigates to the online services section to select the appropriate claim form, such as Form 19 for final settlement or Form 10C for pension benefits. The online process involves entering the linked bank account details, verifying them, and then selecting the reason for withdrawal, often “Abroad Settlement” for NRIs. Supporting documents, if required, are uploaded in JPEG or PDF format, and the claim is submitted, usually requiring an OTP verification.

While online submissions are generally faster, physical submission to the regional EPFO office remains an option for those preferring it, often through a representative in India. After submission, online applications typically process within 15 to 20 working days, though some may settle faster if all details and KYC are complete. The status of the application can be tracked online through the UAN member portal, the EPFO website, or the UMANG App. Upon approval, the funds are directly transferred to the specified NRE or NRO bank account. The EPFO may communicate for clarifications or additional documents if discrepancies are found during verification.