Withdrawing PF soon? Missing this form could quietly cut your payout

If you are planning to withdraw money from your provident fund (PF) account in FY27, a new compliance step could determine whether you receive the full amount or a reduced payout.

 

Under the newly operational Income-tax Act, 2025, individuals with zero tax liability must submit Form 121 to avoid tax deducted at source (TDS) on eligible PF withdrawals.

 

Failure to do so does not increase your tax liability but it can dent immediate cash flows by triggering avoidable deductions.

 

What has changed

 

From April 1, 2026, the tax framework governing declarations for non-deduction of TDS has been reworked. Earlier, individuals relied on Form 15G or Form 15H to declare that their total income was below the taxable threshold. These have now been replaced by Form 121 under the new law.

 
 

The shift is procedural, but the implications are practical: Without this declaration, the EPF withdrawal may be subject to TDS even if your final tax liability is nil.

 

When does TDS apply on PF withdrawals?

TDS on PF withdrawals typically applies in cases such as:

 

· Withdrawal before completing five years of continuous service

 

· Total withdrawal exceeding the prescribed threshold

 

· PAN not submitted or mismatch in records

 

However, even if TDS is technically applicable, it can be avoided if your overall taxable income for the year is zero, provided you submit the correct declaration in advance.

 

How Form 121 works

Form 121 is essentially a self-declaration stating that your estimated total income for the financial year is below the taxable limit, and therefore, no TDS should be deducted.

 

Here is how the process functions:

 

· Part A: To be filled by you (the PF member)

 

o        Includes PAN, estimated annual income, and declaration of nil tax liability

 

o        Must be complete and accurately filled; partial or incorrect entries may invalidate the form

 

· Part B: To be completed by the EPFO (payer)

 

o        The EPFO assigns a Unique Identification Number (UIN) to each submitted form

 

o        This UIN tracks the declaration in tax filings

 

The EPFO then compiles all such declarations received in a month and uploads them to the income tax department’s e-filing system by the 7th of the following month.

 

Why timing matters

Submitting Form 121 is not mandatory, but timing is critical if you want to avoid TDS.

 

· The form should ideally be submitted before initiating the PF withdrawal

 

· Alternatively, it can be filed at the start of the financial year if you anticipate a withdrawal

 

If the form is not submitted on time, TDS may be deducted upfront. While you can later claim a refund when filing your income tax return, that delays access to your own money.

 

Offline process for now

At present, Form 121 is not fully digitised.

 

· You may need to submit a physically signed form

 

· In some cases, scanned copies uploaded through EPFO channels may be accepted

 

· Full online filing with e-sign is expected but not yet enabled

 

This transitional arrangement increases the risk of procedural errors, making accuracy and documentation more important.

 

Common mistakes to avoid

Even minor errors can lead to TDS being deducted despite eligibility for exemption. Watch for:

 

· Incorrect or missing PAN

 

· Underestimating total annual income

 

· Leaving sections incomplete in Part A

 

· Submitting the form after withdrawal request

 

Any mismatch between declared and actual income may also invite scrutiny at the time of tax filing.

 

What it means for your money

The key issue here is not tax liability—but liquidity.

 

If TDS is deducted unnecessarily:

 

· Your immediate payout reduces

 

· You must wait until ITR filing to claim a refund

 

· Cash flow planning, especially during emergencies, can get disrupted

 

For individuals relying on PF withdrawals for urgent needs, such as medical expenses, job loss, or major life events—this timing gap can be significant.

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