In the hurry of shifting jobs, most individuals forget to transfer their Provident Fund (PF). While this wasn’t a problem earlier, things might change now. Read on to know why.
The phase between quitting and joining a new job can be quite tiring. There are a bunch of organisational formalities that demand your attention all at the same time. In the rush of joining a new company, most individuals forget or hold off on transferring their Provident Fund (PF) from their previous employer to their new one knowing well that their funds are safe with the Employee Provident Fund Organisation (EPFO) and will continue to earn tax-free returns. While this is true, things are about to change soon.
Check This: Tax-free Fixed Deposits
In November 2017, the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) ruled out the tax exemption on the interest earned after an employee has quit. Thus, in order to avoid tax, you will either have to transfer your PF balance to your new employer or withdraw the amount at the earliest post the exit.
Additional reading: Linking Of Aadhaar To EPF: A Step By Step Guide
After quitting a job, such accounts remain functional and continue earning interest every year. This is true even though there are no new contributions to your PF account. The PF balance as on the date of exit from an organisation continues to be tax-exempt. But the interest earned on the balance thereafter will be taxable in the year of withdrawal. Remember, it’s only the amount of interest that one’s PF account is earning during the out-of-job period which will attract tax. To avoid tax, you should consider getting your PF balance transferred to the new employer.
In this kind of a scenario, you have two possible alternatives- either withdraw your PF amount or continue earning taxable PF interest. Let’s take a look at the process of withdrawing your PF balance.
When can you withdraw PF balance?
As per the EPF Act, in order to claim final PF settlement, one has to retire from service after attaining 58 years of age. The total PF balance includes the employee’s contribution and that of the employer, along with accrued interest. Moreover, depending on the years of service, one is eligible to get the Employees’ Pension Scheme (EPS) amount as well. Individuals who quit their jobs before reaching 58 years of age can withdraw the full PF balance (and the EPS amount depending on the years of service) if he is out of employment for 60 straight days (or more) after leaving a job.
Planning to withdraw your PF? How about investing your money in Fixed Deposits? Click here to know more.
Along with the PF, one is also allowed to withdraw the EPS amount if the service period has been less than 10 years and not later on. Once this milestone is crossed, the employee compulsorily gets pension benefits after retirement.
Additional reading: When And How Can You Withdraw From Your EPF?
In order to ease the process of making PF withdrawals, transfers, advances and other related payments, the EPFO has launched a ‘composite form’. However, before getting started on the PF withdrawal process, it’s important that you merge all your PF accounts under your UAN. For withdrawal purposes, the total service in your previous organisation only will be taken into account. So, it’s advisable to merge your accounts under your UAN.
The withdrawal process
Withdrawal of PF becomes easier and less time consuming if you have your Aadhaar number with you. We will, however, take you through both the processes of withdrawal- with and without Aadhaar.
Withdrawal without using Aadhaar number
In case you don’t have an Aadhaar but have the PF number, you can use the Composite Claim Form (Non-Aadhaar) on the EPF website.
You will have to furnish your Permanent Account Number (PAN) if the total service period is less than five years. Also attach two copies of Form 15G/15H, if applicable. In case the Universal Account Number (UAN) is not available, you can mention only the PF account number.
Withdrawal using Aadhaar card number
You can submit a Composite Claim Form (Aadhaar) directly to the concerned EPFO office without attestation of the claim form by the employers. You will receive your PF balance in your bank account. So remember to attach a cancelled cheque along with the form.
Additional reading: Combining Multiple EPF Accounts Through UAN
Before proceeding, ensure the following things:
- You have submitted complete details in Form 11 (New) to your employer.
- Your Aadhaar card number and bank account details are available on the UAN portal.
- The UAN has been activated.
The withdrawal process will be based on these conditions. See which one caters to you and choose the form accordingly.
|Below 10 years of service||Withdrawing PF balance plus EPS amount (Composite Claim Form Aadhaar/Non-Aadhaar)|
|Over 10 years of service||Withdrawing PF balance plus EPS amount (Composite Claim Form Aadhaar/Non-Aadhaar)|
|Age 50-58; over 10 years of service||Withdrawing PF balance only and reduced pension (Form 10D)|
|After 58; not completed 10 years of eligible service||Withdrawing PF balance only and full pension (Composite Claim Form Aadhaar/Non-Aadhaar)|
Note: PF= Provident Fund | EPS = Employees’ Pension Scheme
Let’s take each of these conditions one by one.
Withdrawing PF balance plus EPS amount (for below ten years of service)
You will receive both your PF balance and the EPS amount if your service period has been less than 10 years. To get the EPS amount, in the Composite Claim Form (Aadhaar or Non-Aadhaar), along with choosing ‘Final PF balance’, also choose the ‘Pension Withdrawal’ option. If you plan on re-joining the workforce, you may opt to get the ‘Scheme Certificate’ by furnishing Form 10 C.
Withdrawing PF balance plus EPS amount (over 10 years of service)
The EPS amount cannot be withdrawn if you have over 10 years of service. Only the scheme certificate is to be issued by filling Form 10C along with the Composite Claim Form (Aadhaar or Non-Aadhaar). A pension is to be paid from age 58 while a reduced pension can be paid from age 50. One may opt for early pension (reduced proportionately) after 50 years, provided one has completed 10 years of service.
Withdrawing PF balance and reduced pension (age 50-58) (over ten years of service)
You can only get a pension after turning 50 years of age and have rendered at least 10 years of service. If your service period has more than 10 years and you are between the age of 50 and 58, you may opt for a reduced pension. For this, one has to submit Form 10D along with the Composite Claim Form (Aadhaar or Non-Aadhaar).
Withdrawing PF balance and full pension (After 58)
After 58, you have to submit the same Form 10D to claim the full pension.
Additional Reading: How To Withdraw Your EPF Without Your Employer’s Signature
Post-budget new EPF rules to incentivise female employment:
During the Budget 2018 speech, the government announced that to incentivise more female employment in the formal sector and to enable higher take-home wages, it will make changes in the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. This change will reduce women employees’ contribution to 8% for the first 3 years of their employment against the existing rate of 12% or 10% with no change in employers’ contribution.
Latest PF withdrawal rules 2017-18:
- All withdrawals made before completion of 5 years of continuous service are subject to tax. Withdrawals after completion of 5 years of continuous service in the EPF are tax-free.
- If in case the employee loses his job or has to quit as a result of ill-health and so on, withdrawals will not attract tax.
- If the employee makes a withdrawal before the completion of 5 continuous years in the scheme, the principal amount, as well as the interest accrued, is subject to tax. That said, the amount will be taxable in the current financial year.
- If an individual withdraws before the completion of 5 continuous years towards the scheme, the principal amount and the interest accrued on it will attract a tax of 30% if he/she has not submitted their PAN to the EPFO authorities. If the employee has submitted his/her PAN details to the EPFO authorities, 10% TDS (tax deducted from source) will be applicable.
- Funds transferred from one’s PF account towards the National Pension Scheme (NPS) will not attract tax when one makes a withdrawal.
- If the employee shifts jobs and in the process has different PF accounts, he will still be in continuous service to the scheme as long as there has been no gap in contributions.
- Employees have to facilitate the use of the Composite Claims Form to make a partial withdrawal or a final settlement claim.
- If the employee has seeded his/her Aadhaar card details with their UAN, they can submit the Composite Claims Form to make a withdrawal directly to the EPFO without the requirement of the attestation of their employer. Those who have not seeded their Aadhaar card details with their UAN have to submit the Composite Claims Form with the attestation of their employer to make a withdrawal.
Latest PF Rules:
In an office memo dated April 12, 2019, the Ministry of Labour and Employment has amended the guidelines of the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY). As per the new guidelines, the Government of India will now contribute to the employer’s full admissible contribution for the first three years from the date of registration of the new employee for all sectors. Moreover, the government will pay the EPF contribution for existing beneficiaries for their remaining period of three years. Employees who have joined on or after 1st April 2016, having a Universal Account Number (UAN) with salary up to Rs. 15,000 per month, are covered under this scheme.
The contribution that the employer makes is 12 per cent of basic wages plus dearness allowance plus retaining allowance. An equal contribution is payable by the employee also. In the case of establishments which employ less than 20 employees or meet certain other conditions, as per the EPFO rules, the contribution rate for both employee and the employer is limited to 10 per cent.
Since PF is a kind of forced savings, it is advisable to transfer your PF balance when you switch jobs. If you are considering quitting service to start your own business, you can transfer the entire balance in your EPF account to the National Pension Scheme.
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