Employee Provident Fund withdrawal v/s transfer

With every change or move in career, follows a long list of essential paper work formalities to clear previous dues. It takes a lot of effort from both sides – i.e. Company as well as the employee to work hard towards this clearance. Many times, the excitement of a new job role or a city change is so huge and overwhelming that you leave many things undone with the previous job.

One of the severance formalities mostly left attended is clarity on Employee Provident Fund. On leaving a job, it is in the interest of employee to either transfer his provident fund account to his new job or withdraw the collected amounts. The decision has to be made at the time of leaving the last job. 

 

What is a better option – To withdraw or Transfer EPF?

Previously, with the numerous and delayed paper work, employee usually preferred to get their PF funds withdrawn over transferring it to new jobs. However, now with the Universal Account Number (UAN) facility, it has become a much more simpler process to handle the transfer. However, on a numerical front also it has its own calculations when you make your decision.

a) No of years in last service- In case of your service of short span say less than 3 years, withdrawing your PF would not accumulate to a huge sum plus the amount received on withdrawal would be taxable. Also, if continue with the same PF number for more than 10 years you can easily be eligible for pension (after 58 years of age). The pensionable salary depends on your last drawn basic salary.

b) Number of years left to retire – If a person is nearing his retirement age and making a job change, it is best advised to let the PF grow on its own and transfer it to new job rather than withdrawing it.

c) Purpose of withdrawal – If the person is in need of funds for an important cause like building his home, sponsoring on his children's education expenses or to fund a medical emergency, it is advised to withdraw the amount if no other alternative is available. Although, if he intends he can even avail a n advance on the same. But this should be for an identified 'Need' and not a 'Undesirable Want'

d) Taxability - The amount of PF withdrawn before five years of continuous service is eligible for taxation. So, be wise to understand if you want to withdraw the money or get it transferred to your new job.

Year of Service	PF eligible monthly Basic Assumed	Annual Employee Contribution (12%)	Annual Employer Provident Contribution (3.67%)	Annual Employer Pension Contribution (8.33%)	Interest earned on assumed PF rate =8.5%	Amount at end of tenure
1	6500	9360	2863	6497	1039	13262
2	6500	9360	2863	6497	2166	27650
3	6500	9360	2863	6497	3389	43262
4	6500	9360	2863	6497	4716	60201
5	6500	9360	2863	6497	6156	78579
6	15000	21600	6606	14994	9077	115862
7	15000	21600	6606	14994	12246	156314
8	15000	21600	6606	14994	15684	200204
9	15000	21600	6606	14994	19415	247825
10	15000	21600	6606	14994	23463	299494
11	15000	21600	6606	14994	27854	355554
12	15000	21600	6606	14994	32620	416380
13	15000	21600	6606	14994	37790	482376
14	15000	21600	6606	14994	43399	553981
15	15000	21600	6606	14994	49486	631673
16	15000	21600	6606	14994	56090	715969
17	15000	21600	6606	14994	63255	807430
18	15000	21600	6606	14994	71029	906665
19	15000	21600	6606	14994	79464	1014335
20	15000	21600	6606	14994	88616	1131156

The amount received at end of 20 years is Rs 11,31,156/- completely tax free

Monthly pension after age of 58 is Rs.4286/-

For more information related to your provident fund contribution, transfer or even on advance eligibility , please contact us at saarthifp@gmail.com or visit www.vijayshahandassociates.in