Should you withdraw accumulated EPF corpus every time you switch job?

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Should you withdraw accumulated EPF corpus every time you switch job?
EPF account is primarily maintained to meet an individual's financial needs at the time of retirement. However, citing issues such as the employer might default on EPF payments or other needs, investors in the account are compelled to break their EPF savings every time they switch job. With this the sole purpose of EPF account is defeated.

However as recommended and suggested by experts, withdrawal of PF funds should be done in the event of some emergency o for meeting retirement needs. The provisions concerning EPF allow the account holder to either withdraw the corpus or transfer the account to the new employer. With regard to the procedure involved in the transfer of the EPF account from the former employer to the new employer, the regulator has proposed a single EPF account for all employees.

Also, apart from foregoing the savings benefit that the EPF account would have provided with the advantage of compounding to the concerned employee, withdrawal of EPF funds has different tax implications in specific situations. In a case when, the employee withdraws the amount after 5 years of continuous service (that accounts for service term with the previous employer provided the accumulated EPF corpus is transferred to the new employer), interest as well as the amount thereon is not taxable.

However, when before serving for the 5 year term, if the EPF account-holder, withdraws the sum, employer's contribution as well as the interest earned thereon is chargeable under the head salary income. Apart from it all the previously made claims under section 80C for contribution towards EPF account if the employee was not entitled for it shall also fall in the year in which the EPF account-holder withdraws the amount. Interest earned on employee's own contribution towards the account will also be taxed under the head income from other sources.

An important point in this respect that could be of help to EPF account holders,withdrawal of funds from the EPF account for reasons that are beyond the control of the employee (even in the case the service with the employer is not continued for 5 years) does not attract tax liability.

Also continuous service with the same PF account number, entitles the concerned to pension after attaining 58 years of age. For this pension amount, both the private sector as well as government sector employees are eligible provided funds from the account are not withdrawn. To know more about pension eligibility on account of holding the same EPF account. The pension provided under the Employee Pension Scheme for maintaining the EPF account intact is equivalent to 8.33% of the 12% contribution of the employer.

So, as suggested withdrawals from the EPF account should only be considered in case of emergency or after serving the employer for a continuous term of not less than 5 years to avail of tax benefits.

Read more about: provident fund, epf, pension
Story first published: Wednesday, February 26, 2014, 14:41 [IST]
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