Is PF Withdrawal Taxable for NRI?

Understanding NRI PF Withdrawal

When an individual working in India moves abroad, meets the specified conditions and becomes a Non-Resident Indian (NRI), their contributions to the Employees’ Provident Fund (EPF) stop, since the EPF Act applies only to employees working in India. The EPF account balance, which includes both employer and employee contributions and interest that has built up, stays with the EPFO and can be withdrawn under certain circumstances.

For most employees, EPF withdrawals are permitted in three instances –

1. At retirement age (after age 58 )
2. Upon retirement, or
3. After being unemployed for more than two months.

But in the case of NRIs relocating abroad permanently, the rules are more flexible. They are allowed to withdraw the entire EPF balance immediately after moving overseas, regardless of age or employment status¹. This makes it easier for professionals settling abroad to access their retirement savings without waiting until the standard retirement age.

Withdrawal can be done online through the UAN (Universal Account Number)Member Portal or UMANG App if Aadhaar is linked to UAN. For those who prefer the offline route, forms can be submitted directly to the EPFO office, though employer endorsement is required if UAN is not Aadhaar-linked. In both cases, supporting documents like PAN, Aadhaar, proof of exit from the last employment, and bank details are essential.

 

Eligibility Criteria for PF Withdrawal by NRIs

NRIs can withdraw their Provident Fund (PF) under specific circumstances, depending on whether the move abroad is temporary or permanent².

 

Temporary Relocation (SSA Countries)

If you are posted to a country that has a Social Security Agreement (SSA) with India, you can apply for a Certificate of Coverage (CoC) from EPFO. This exempts you from social security contributions in the host country while your PF account in India continues, provided your employer keeps contributing to the scheme.

 

Temporary Relocation (Non-SSA Countries)

If you move to a country without an SSA, you will need to contribute to both the host country’s system and continue your PF contributions in India unless employer arrangement exempts you.

 

Permanent Relocation Abroad

If you move overseas permanently, you can withdraw your entire PF corpus immediately. To do this, your KYC must be completed on the UAN portal (Aadhaar, PAN, bank details, mobile number), your PF balance should be consolidated into the last active account, and your employer must update your exit date. The withdrawn amount will be credited to your Indian savings or NRO account.

 

Taxability of PF Withdrawal for NRIs

For NRIs, the tax treatment of Provident Fund withdrawals depends largely on the length of service. Withdrawals made after completing 5 years of continuous service are exempt from tax³. However, if you withdraw before completing 5 years of service, there would be a TDS (Tax Deducted at Source) on the same. The TDS rules are as follows –

1. Withdrawal amount is below ₹50,000³ – No TDS applicable but the withdrawn amount is taxable if within the income tax bracket
2. Withdrawal amount is more than ₹50,000³ – TDS of 10% is applicable with PAN and 30% without PAN

To prevent double taxation, NRIs can avail benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence³.

Non-resident members should also note that a surcharge and 4% cess are added to the TDS. The surcharge varies by income: nil up to ₹50 lakh, 10% from ₹50 lakh to ₹1 crore, 15% from ₹1 crore to ₹2 crore, 25% from ₹2 crore to ₹5 crore, and 37% above ₹5 crore⁴ for FY2021-22.

 

Key Takeaways

1. If you permanently relocate abroad and cease employment in India, you can withdraw your EPF balance immediately without any waiting period¹.
2. If you are going abroad temporarily for work, you can keep your EPF account activated.
3. If you are temporarily relocating to a country having an SSA (Social Security Agreement) with India, you would be exempted from contributing to the foreign country’s social security scheme².
4. For non-SSA countries, you have to contribute to your EPF account in India and also to the social security scheme of the country you move to².
5. For NRIs, PF withdrawal is taxable if done before completing five years of continuous service.
6. Withdrawals made after five years are tax-free in India.
7. A TDS is also applicable on withdrawals made before 5 years if the amount is more than ₹50,000
8. NRIs can use DTAA provisions to reduce their tax liability or claim credit in their country of residence.

 

Conclusion

Managing Provident Fund withdrawals as an NRI requires a clear understanding of both eligibility and taxation rules. Withdrawals made after five years of continuous service remain tax-free, but early withdrawals attract TDS and may increase your tax burden if not planned carefully. By ensuring your KYC is updated, PAN is linked to Aadhaar, and DTAA benefits are properly claimed, you can minimise deductions and maximise the value of your savings. With proper planning, your PF corpus can serve as a strong financial cushion even after you move abroad.

 

FAQs

1. Can NRIs claim tax exemptions on PF withdrawal under DTAA?

   Yes. NRIs can claim benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence³.

2. What is the TDS rate on PF withdrawal for NRIs?

   For NRIs, the TDS rate on Provident Fund withdrawal depends on the length of service and PAN status. If the withdrawal is made before completing five years of continuous service, TDS is deducted at 10% if the PAN is linked and 30% if it isn’t³. On the other hand, if the PF is withdrawn after five years of service, no TDS is applied.

3. How can NRIs avoid TDS on PF withdrawal?

   TDS is applicable only on withdrawals made before 5 years, and the amount is more than ₹50,000. For lower amounts and if the withdrawal is after 5 years of service, no TDS is applicable³.

4. What documents are required to claim tax benefits on PF withdrawal?

   Here are the documents that are needed to claim tax benefits on PF withdrawal³ -

   1. PAN Card
   2. Aadhaar
   3. UAN details or EPF passbook if UAN is not allotted
   4. Bank account details which can be furnished through a cancelled cheque (Indian savings or NRO)
   5. Proof of date of birth
   6. Proof of local Indian address
   7. Proof of last employment exit
   8. Marriage certificate for females if applicable

5. Does the amount of PF withdrawal affect its taxability for NRIs?

   Yes, the amount of PF withdrawal is important for TDS implications. A TDS is applicable if you withdraw the EPF before completing 5 years of service and if the amount is more than ₹50,000³.
   

Source

1. https://economictimes.indiatimes.com/nri/invest/going-abroad-how-to-handle-your-epf-when-you-move-to-another-country/articleshow/118625937.cms?from=mdr
2. https://www.linkedin.com/posts/neil-borate-1a435a57_today-aprajita-sharma-cfp-explains-what-activity-7326468963675037696-Y_Il/
3. https://ushmaassociates.com/managing-epf-as-an-nri-a-comprehensive-guide/
4. https://www.epfindia.gov.in/site_en/FAQ.php