Tax Deduction at Source on Provident Fund Withdrawals : Clause 392(7) of Income Tax Bill, 2025 Vs. Section 192A of the Income-tax Act, 1961

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....erning lump-sum withdrawals from retirement savings vehicles. The evolution from Section 192A to Clause 392(7) is emblematic of the broader reforms and consolidation efforts in the Indian income tax regime, aimed at enhancing clarity, compliance, and administrative efficiency. The present commentary provides a detailed, item-by-item analysis of Clause 392(7), contrasts each aspect with the existing Section 192A, and explores the underlying policy rationale, practical implications, and potential areas for future legal development. Objective and Purpose The core objective of both Clause 392(7) and Section 192A is to ensure tax is duly collected at the point of payment of accumulated provident fund balances that are otherwise taxable in the ....

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....ployee's total income, i.e., where exemption under paragraph 8 of Part A of Schedule XI does not apply (typically, where the withdrawal is made before the minimum qualifying period or other conditions for exemption are not met). 2. Threshold for Deduction * The obligation to deduct tax at source arises only where the aggregate amount of such payment is fifty thousand rupees or more. * This threshold ensures that small withdrawals, which may be frequent for low-income employees or in cases of partial withdrawals, are not subject to TDS, thereby reducing administrative burden and hardship for such employees. 3. Rate of Deduction * Income-tax is to be deducted at the rate of 10% on the accumulated balance payable to the employee. ....

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....for TDS Accumulated balance includible in total income due to inapplicability of para 8, Part A, Schedule XI Accumulated balance includible in total income due to inapplicability of rule 8, Part A, Fourth Schedule Threshold Aggregate payment of Rs. 50,000 or more Aggregate payment of Rs. 50,000 or more (amended from earlier Rs. 30,000) Rate of TDS 10% 10% Timing At the time of payment At the time of payment Reference to Exemption Para 8, Part A of Schedule XI (2025 Bill) Rule 8, Part A of Fourth Schedule (1961 Act) PAN Requirement No explicit mention Earlier required PAN, else TDS at maximum marginal rate (provision omitted w.e.f. 01-04-2023) Key Observations from the Comparison * Structural Continuity: ....

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.... specified reasons). * The TDS mechanism is triggered only where these conditions are not met, and the amount becomes taxable. 3. Administrative Simplicity and Fairness * A fixed threshold and uniform rate of 10% ensure administrative simplicity and reduce the burden on both the deductor and the deductee, while also protecting small-value withdrawals from unnecessary compliance. 4. Alignment with Broader TDS Framework * Clause 392(7) sits within a comprehensive TDS regime under the new Bill, and its design is consistent with the approach taken for other lump-sum payments (e.g., gratuity, superannuation). Practical Implications 1. For Employees * Employees making premature withdrawals (i.e., before fulfilling the conditions for e....

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....essation, or transfer of balances between funds. 2. Aggregate Threshold Application * The provision refers to the "aggregate amount of such payment." Clarification may be required as to whether this refers to withdrawals in a single transaction or cumulative withdrawals in a financial year. 3. Treatment of Non-PAN Cases * The omission of the PAN-related provision (deduction at maximum marginal rate in absence of PAN) in the new Bill may create uncertainty, unless addressed in the general TDS provisions. 4. Interplay with Other Retirement Benefits * Coordination may be needed where an employee receives multiple retirement benefits (gratuity, superannuation, provident fund) to ensure correct TDS application and avoid double taxation ....