PF Withdrawal After Leaving Job: Yes Or No?
The Decision of PF Withdrawal After Leaving Job Should Not Be Taken in Haste
In our country, PF or Provident fund is considered a boon for salaried class. It is also known as EPF or Employee Provident Fund. In fact, in many cases, PF is the only mean of investment for a person. Provident fund helps the salaried class people to accumulate money for financial assistance after retirement. You can say that the money invested in PF is meant for retirement. So I am going to tell you whether you should go for PF Withdrawal After Leaving Job.
PF Balance Works As A Financial Pool For Your Retirement
If you work till your retiring age and maintain your EPF account without any withdrawal, you can accumulate quite a big amount. This PF is built through regular and monthly contributions made by the employee and his/her employer.
The EPFO i.e. Employees’ Provident Fund Organisation provides a fixed rate of interest on the amount accumulated. The interest earned and the total amount withdrawn at maturity (retirement), resignation or death are tax-free.
Also, you are eligible for PF withdrawal after leaving job or you can transfer the balance over to the new employer. You should not forget that PF offers financial security in times of emergency. But should you go for PF withdrawal after leaving job? If you ask me, I will say NO.
Why you should not consider PF Withdrawal after leaving job
There may be many reasons of you leaving the job, but my denial for PF withdrawal after leaving job is due to one main reason. PF is your retirement money, and unless you are in dire need, you should not touch it.
It is a common practice for most of the EPF subscribers to withdraw the PF balance from the previous employer before moving onto the next one. But I would say to ask yourself if you really need PF withdrawal after leaving job. As soon as you decide to withdraw the PF balance, the whole purpose of contributing to the retirement corpus is defeated. Apart from strong reasons such as unemployment, treatment cost or financial crunch, it doesn’t make sense to withdraw the PF balance.
PF Withdrawal after leaving job: What you may forego
The second reason behind my saying no for PF Withdrawal after leaving job is the power of compounding. Suppose your age is 35 years and in your PF account, there is a balance of Rs. 5 lakh. Even after your leaving the job (and not moving to another one) if you remain invested in PF till your retirement, your corpus will become significant.
If we assume the rate of interest as 8% per annum, in 23 years (i.e. till 58 years of age), your PF balance of 5 lakh will turn into 29.36 lakh. Remember that you will get this much of amount without making any further contribution. The icing on the cake is that PF withdrawal at the retirement is totally tax free.
PF Withdrawal after leaving job: No Risk Of Inoperative Account
Earlier, an EPF account was considered as inoperative if it was dormant for 36 months or more. And since April 1, 2011, inoperative accounts did not attract any interest. What it meant that if an employee resigned and did not join another job, or failed to transfer his account to the new employment, the funds in his EPF account did not earn any interest. But now this is not the case. Now, the government has relaxed the definition of ‘inoperative’ EPF accounts. Now, if an EPF account is lying idle for 36 months or more, it will not automatically be treated as inoperative, but will continue to earn interest.
When can an EPF account become inoperative
(a) Where the employee retires from service after the age of 55 years.
(b) Where the employee migrates abroad permanently.
(c) On the death of the account holder.
In both (a) & (b), if the employee does not apply for PF withdrawal within 36 months, his/her account becomes inoperative.
PF Withdrawal after leaving job: Better to transfer to new employer
Now, every EPF account has a Universal Account Number i.e. UAN. This UAN never changes, so now it has become easy for you to track balance, initiate transfers or withdraw the EPF balance when required. Also, you should remember that PF withdrawal is taxable if service is not rendered continuously for at least 5 years.
It is not required to work with a single employer for 5 years. The provision states about the continuation of service, whether with a single employer or more than one employer. But when a person changes the job before completing 5 years of continuous service, s/he must get the PF balance in previous company transferred to new company PF Account.
PF Withdrawal after leaving the job: Tax computation before completing 5 years
There are 4 parts to any PF corpus—employer contribution, interest earned on this, employee’s contribution and interest earned on this. The taxation is based on the time of quitting employment. As I have told you earlier, if there isn’t continuous service of at least 5 years, PF withdrawal after leaving job is not tax-free.
You have to be ready to pay tax on all the four parts of PF corpus. Employer’s contribution, interest thereon and Employee’s contribution will be taxable as salary income. The tax rate will be applicable as per the specific year’s tax rate and the relief under section 89 would also be available. The interest component on employee’s contribution will be taxable as income from other sources.
PF Withdrawal after leaving job: Remember The TDS Provisions
TDS on EPF is applicable if EPF withdrawal is more than Rs 50,000 and the PF account holder hasn’t completed 5 years of Period of service. TDS will be deducted at 10% if PAN is submitted. TDS is deducted at the maximum rate of 30% if PAN is not submitted. However, if Form 15G or 15H are submitted by the employee, the TDS is not deducted. Form 15H is submitted by those above 60 years of age, and Form 15G is submitted by those who are below the age of 60 years.
I hope that this article would have given the answers of all your questions related with PF Withdrawal after leaving job. Still, if you have any doubt or query, feel free to share that with me.