Job Switch PF Transfer Rules: Do not be in a hurry to withdraw PF as soon as you change job, understand the connection of 5 years of service and tax; Otherwise heavy TDS will be deducted

Changing jobs for career growth, better package or promotion is a common practice in the corporate world and private sector. However, as soon as an employee leaves the old company and joins a new organization, a big question comes before him – what to do with the PF account of the old company? Often young professionals, either out of attraction or to meet immediate expenses, apply for withdrawal of the entire PF balance of the old company (Final Settlement). Financial advisors and tax experts clearly say that withdrawing PF money as soon as you start a new job can have the biggest impact on your financial health. If you withdraw money without understanding EPFO’s ‘5-Year Continuous Service Rule’ and the stringent provisions of the Income Tax Act, a large portion of your hard-earned money may be deducted in the form of TDS and Income Tax. It is very important for the working employees from the IT and corporate hubs of Gomti Nagar and Hazratganj in the capital Lucknow to Noida, Gurugram, Bengaluru and Mumbai to understand the mathematics of PF withdrawal and tax.

There is a clear rule under Section 10(12) and Fourth Schedule of the Income Tax Act, 1961 that if an employee completes minimum 5 years of continuous service in EPFO, then the entire amount withdrawn from the PF account becomes 100% tax-free. In this situation, no TDS is deducted by EPFO ​​on the withdrawn funds. But if the total continuous service of an employee is less than 5 years (60 months) and he withdraws money from the PF account after changing jobs, then the entire amount comes under the category of ‘taxable income’. Often people assume that PF money is always tax-free, whereas this exemption automatically ends if the time limit of 5 years is not met.

If your total service period is less than 5 years and you withdraw Rs 50,000 or more, under Section 192A, EPFO ​​directly transfers the remaining amount to your account after deducting TDS at the rate of 10 percent. If your PAN card (PAN) is not linked to the EPF account and Universal Account Number (UAN), then this TDS rate under Section 206AA can directly reach 20%. Not only this, this 10% or 20% TDS is only a prepayment. When you file Income Tax Return (ITR) for that financial year, the amount withdrawn from PF will be added as per your slab. If you fall in the 20% or 30% tax bracket, you will have to pay additional taxes and cess from your own pocket on the remaining difference amount. At the same time, if the withdrawal amount is less than ₹ 50,000, then TDS is not deducted, but that amount is still considered taxable in ITR.

Another big financial loss of withdrawing PF before 5 years is in the form of ‘Reversal’ of Section 80C. During employment, when 12% of Employee Provident Fund is deducted from your salary every month, then you avail tax deduction of up to Rs 1.5 lakh on it under Section 80C of Income Tax. If you withdraw the money before the completion of 5 years, the Income Tax Department assumes that the 80C tax exemption you availed in those years has now become invalid. As a result, the original contribution deposited by you is recalculated as income of previous years and additional tax liability becomes payable on it. Along with this, the share given by the employer (Employer Share) and the entire interest received on it is added under ‘Salary’ and ‘Income from Other Sources’ and brought under the ambit of tax.

The biggest misconception among employees is whether 5 years of service should be completed in the same company? The direct answer is no. ‘Continuous service’ under EPFO ​​and Income Tax rules means continuous employment and not working with any one employer. Suppose you worked in company ‘A’ for 3 years and then changed your job to company ‘B’, where you worked for 2 years. If you get your old PF transferred to the PF account of the new company while changing companies, then the service period of your two companies will be linked (3 years + 2 years = 5 years). This way you fulfill the quota of 5 years of continuous service and future withdrawals become completely tax-free. Conversely, if you withdraw the money as soon as you change companies, your service meter will be reset to zero and you will have to complete 5 years again in the new job.

Some such humanitarian and extraordinary situations have been prescribed in the Income Tax Rules (Rule 8, Part A of Fourth Schedule), in which no tax or TDS is deducted on PF withdrawal even if 5 years of service is not completed:

• Serious illness or illness: If the employee becomes incapable of continuing in the employment due to any serious physical ailment, disability or serious illness and the service is terminated.

• Closing down of company or business: If the employer’s company goes bankrupt, factory closes or goes out of business.

• Circumstances beyond the control of the employee: If job is lost due to retrenchment or any reason which was not in the control of the employee.

To get exemption in these circumstances, it is mandatory for the employee to attach a valid medical certificate, company closure letter or official proof of retrenchment at the time of claim settlement.

Instead of withdrawing money while changing jobs, choosing the option of online transfer through UAN is beneficial from every point of view.

1. Surefire Benefits of Compound Interest: A secure and guaranteed annual interest of 8.25 percent is given by the government on EPF account. By maintaining the money in the account, this fund becomes a large retirement wealth corpus in the long run through compounding.

2. Continuity of Pension Service (EPS Service): Along with the PF transfer, your Employee Pension Scheme (EPS 95) service period is also recorded in the new record. If your total EPS service completes 10 years, you become entitled to receive monthly pension for life after the age of 58 years. If you withdraw money midway, pension benefits slip away.

3. Records protected by Annexure-K: When you transfer PF online through Form 13, ‘Annexure K’ transfer certificate is issued by EPFO. This document is a legal proof of the service history of the old company, joining-exit date and accumulated funds along with interest, which prevents any discrepancy in any claim in future.

EPFO has made the entire process of transferring old PF to new member ID on change of job digital and paperless:

1. First of all go to the unified member portal of EPFO ​​(unifiedportal-mem.epfindia.gov.in/memberinterface/).

2. Login by entering your 12 digit Universal Account Number (UAN), password and captcha.

3. by going to the top menu bar Online Services Click on the tab and from the dropdown One Member – One EPF Account (Transfer Request) Select.

4. Your current job and personal details will appear on the screen. Click on ‘Get Details’ to get details of your previous job (Previous Employer) in the section below.

5. Select either your Previous or Present Employer for attestation (usually selecting current employer is convenient for quick verification).

6. Click on ‘Get OTP’. A 6 digit OTP will come on the mobile number linked to your Aadhaar.

7. Enter the OTP and click on ‘Submit’. The online transfer request will be sent to the concerned employer and field office, the status of which you can check anytime by going to ‘Track Claim Status’.