There is a change in the TDS rules for PPF withdrawals. Going forward, if you haven’t filed your income tax returns (ITR) during the last 3 financial years, then your PPF withdrawals will witness TDS (or tax deduction at source).
The rate % of TDS depends on the amount being withdrawn and ofcourse, if he/she has filed ITR in the 3 preceding assessment years or not.
The new PPF TDS Rule states that, if a PPD account holder has not filed IT returns in last 3 years, and if:
- He withdraws more than Rs 20 lakh but less than Rs 1 crore, then 2% TDS of the aggregate amount over Rs 20 lakh will be deducted. So if you withdraw Rs 35 lakh, then TDS of 2% will be charged on the amount above Rs 20 lakh, i.e. on (35 – 20 lakh = Rs 15 lakh).
- He withdraws more than Rs 1 crore, then 5% TDS of the aggregate amount over Rs 1 crore will be deducted. So if you withdraw Rs 1.25 crore, then TDS of 2% will be charged on the amount above Rs 20 lakh but below Rs 1 crore, i.e. on Rs 80 lakh). Plus 5% would be charged on the amount above Rs 1 crore, i.e. Rs 25 lakh.
The above PPF TDS rules are for those who haven’t filed tax returns during last 3 years.
But even those who have filed returns and their PPF withdrawals exceed Rs 1 crore, even they will have a 2% TDS deducted on the amount about Rs 1 crore.
This new TDS rule of PPF is applicable from 1st July, 2020 and are applicable on cash withdrawal from banks, co-operative banks as well as post offices. More importantly, these TDS rules are also applicable to all other small savings schemes like Post office deposits, recurring deposits, NSCs, etc.
One of the reason for this new rule is that many HNIs have been using small saving schemes to avoid paying taxed. Many HNIs open PPF account in names of various family members and deposit Rs 1.5 lakh a per in each account. The family members have no income of their own and hence, don’t file income tax returns. So by introducing this TDS rule, such practices can be curbed.
Further Readings on PPF – Do check out historical PPF interest rates. Or to find out your PPF maturity amount, use this free PPF Corpus Calculator. Or figure out whey investing Rs 1.5 lakh in PPF in April is more profitable or on a related note, why investing in PPF before 5th of month makes a lot of sense. The reason being that PPF interest calculation methodology is slightly technical. Also read VPF Vs. PPF; or PPF Maturity Options (After 15 years); or PPF Withdrawal Options (Before 15 years); or PPF Vs. NPS; or ELSS Vs. PPF. And with the chances of PPF rates falling in future, it will take more time for you to save Rs 1 crore using PPF alone. You might also want to check out EPF interest rate history and compare it with PPF rates currently to decide which is better for you.
So your PPF withdrawal is still not taxable but you may face some TDS deduction if you haven’t filed returns in last 3 years. So that is the answer to your question – Is TDS deducted on PPF account?