The Employee Provident Fund (EPF), which was enacted in 1952, is a government-backed savings scheme to encourage the working class to save responsibly for retirement. Considering that everything else has tax slapped on it, it’s refreshing to think of a saving scheme that is tax-free – once it reaches maturity that is. Those who park their money in this saving scheme, reap the benefits upon maturity – as an 8.8% interest rate per annum is set against the outstanding amount. For example, if you are earning a salary of Rs.25,000, after 35 years you could expect a saving of approximately Rs.1 crore at your disposal. The biggest mistake people make is to withdraw their PF savings after every job change rather than transfer it, in such cases, if the savings is below a period of 5-years (a premature withdrawal), then you can expect tax to be levied on the amount. For most people, transferring a PF account if you are shifting jobs seems like a tedious task. Well, it was but it isn’t any more. If you are shifting jobs or if you are branching into a new line of work, this is what you have to keep in mind regarding transferring or withdrawing your PF money.
If you have not made any contributions towards your account in the last 36 months (3 years), then your account will be classified as a dormant account. As of April 2011, the Government decided to classify such inoperable accounts as ‘dormant’ to discourage people from just stashing their money in their PF accounts without making contributions. In such cases, if the account is deemed ‘dormant’, then the interest (8.8% p.a.) is halted. Thus, parking your savings in an inoperable or dormant account is of no way beneficial.
What you need to do to transfer your PF money:
- The introduction of the UAN (Universal Account Number) has made the process of transferring PF money easy. For those who do not know, a UAN number is a 12 digit code given to employees holding a PF account that is issued by the EPFO (Employees’ Provident Fund Organisation). The number will help identify the employee’s Provident Fund account despite multiple shifts between organisations.
- To transfer the PF account after a job shift, one needs to give his/her employer the UAN – giving them access to make the monthly contribution.
- Transfer of funds can be done online and offline. For the online transfer of funds, the employee has to get a digital signature from his/her employer to forward the process. Whereas, for the offline process, the employer has to submit the EPF transfer form with the new employer, who will then contact your previous employer to process the transfer.
- The whole process roughly takes 2-3 weeks, following your date of joining the new company.
For instance, if you have quit working and haven’t made any contributions towards your Provident Fund for a couple of months or more, or you want to branch into another line all together, you can withdraw the money using Form 19. The form can be downloaded from the EPFO’s website. Though this is not suggestible, as it defies the very purpose of the scheme, withdrawing the amount will result in you bearing a tax amount. If you have withdrawn the amount before five years of continuous employment (and PF contributions of course), and the outstanding savings amount is Rs.50,000 plus, a 10% deduct tax at source (TDS) will be levied on the withdrawal by the EPFO. Since you now know the consequences of making a premature withdrawal, it is advisable to withdraw your PF savings after 5 years as it is then tax-free, although the ideal situation would be to park your savings and reap the benefits once you’ve called the curtains on your career.