EPF Update: If you work in the private sector, a portion of your salary is deposited into the Employees’ Provident Fund (EPF) every month. Your company contributes an equal amount to your contribution. PF is generally considered a safe investment for retirement, but often people change jobs mid-career or leave their jobs for various reasons.
In such a situation, the biggest question arises, what will happen to the lakhs of rupees you’ve deposited? Can you withdraw the entire amount upon leaving your job, or is it wiser to transfer it? There are several nuances in the Employees’ Provident Fund Organization (EPFO) rules that directly impact your pocket.
When and how much can you withdraw
EPFO rules are quite flexible to provide relief to employees during times of financial crisis. If you retire at the age of 58 or 60, you receive the entire amount, including interest, in a lump sum. But the rules work in a way that if you lose your job mid-career and remain unemployed for one month, you can withdraw 75% of your PF balance as an advance.
If you remain unemployed for two consecutive months, you can withdraw the remaining 25% and close the account completely. However, if an employee decides to permanently settle abroad, they are entitled to withdraw their entire funds before the age of 58.
Tax to be paid on PF withdrawals
Whether PF withdrawals are completely tax-free depends on the length of your continuous service. The EPFO wants you to save this money for a long time. If you withdraw money before completing five years of continuous service, tax will be assessed on your withdrawal. If the withdrawal amount exceeds a certain limit, TDS will also be deducted.
Conversely, if you have consistently transferred your PF during your employment or when changing jobs, and the total period exceeds 5 years, your entire withdrawal is completely tax-free. Therefore, experts always advise that transferring your PF instead of withdrawing it when changing jobs is financially prudent.
What are the rules regarding pension money
Employees often get confused between EPF and EPS. Remember, a portion of your PF goes into a pension fund, which has completely different rules than PF. If you have contributed to EPS for 10 consecutive years, you cannot withdraw your pension money in a lump sum. In such a situation, you are entitled to only a monthly pension after the age of 58.
However, if your total service period is less than 10 years and you are leaving your job, you can withdraw the amount deposited in the pension fund in a lump sum. But once you cross the 10-year mark, you become a pensioner, and the funds are locked in to provide you with regular income in your old age.
What to do if you change jobs
In this digital age of careers, transferring your PF account using your UAN has become incredibly easy. When you move from one company to another, your UAN number remains the same. You simply need to transfer your old PF account to your new account online.
The biggest advantage of transferring your PF account is that your service continuity is maintained, allowing you to easily avail the 5-year tax-free benefit and the 10-year pension benefit. The true purpose of PF is to create a substantial retirement fund for your old age. Therefore, unnecessary withdrawals reduce the benefits of compound interest and weaken your future security.
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