PF Money– Have you ever wondered what should be done with your PF account when you change jobs? Is it right to withdraw the money immediately or is it better to transfer it? Many people live in this confusion and withdraw PF balance when they need cash quickly. But this habit can have a big impact on your financial health and retirement plans.
Let us tell you whether it is right to withdraw PF money after job switch or not and what impact it has on pension and tax.
What is a PF account?
Every salaried person in India has a PF account which is managed by EPFO i.e. Employee Provident Fund Organisation. Every month 12 percent of your basic salary is deposited in this account and the company also contributes the same amount. This means that every month savings from your salary automatically goes into the PF account. This PF account later becomes the support for pension and retirement fund.
Disadvantage of withdrawing money as soon as you change jobs
Many people think that if the company changes, the old PF account should be emptied. Some people also withdraw money due to lack of cash. But by doing this, the benefit of compound ends. Interest is received on PF every year and that too through compounding i.e. interest on interest.
If you withdraw money frequently, the fund will become very small by the time of retirement. Apart from this, if you withdraw money before the completion of 5 years, then tax will also be levied on it. Both you and the company contribute to PF. Out of the company’s contribution, 8.33 percent goes to EPS i.e. Employee Pension Scheme. If you have contributed for 10 years, then you get pension after retirement. But if you withdraw the EPS money, then the benefit of pension will end forever. Therefore, it is important to keep the EPS fund active.
It is better to transfer PF account?
In today’s digital age, transferring PF account has become very easy. Through UAN portal, you can transfer your PF balance to the new company’s account in a few clicks. This will keep adding to your balance, you will keep getting interest and you will have a large amount on retirement.
You will also get tax benefits
EPF is a great way of tax saving. The interest received on contribution of up to Rs 2.5 lakh every year is tax free. If you have invested money in PF for 5 consecutive years, then you will not have to pay tax on withdrawal. But if the account becomes dormant or inactive for 3 years, then the interest received on it will become taxable.
It seems easy to withdraw PF money as soon as you change jobs but it is harmful for your future. The right way is to transfer the PF account and keep the EPS fund intact so that you can get a good pension and a large corpus on retirement.