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Withdrawing EPF? You don't need your employer's signature anymore
Withdrawing EPF? You don't need your employer's signature anymore
Most employees who have withdrawn their provident fund (PF) amount know what a painful exercise it is. The main reason being your previous employer is required to authenticate the transfer or withdrawal form by attesting it. The process is lengthy, tedious and not employee-friendly. Things, however, are about to change, thanks to the Employees' Provident Fund Organisation (EPFO), which has introduced a new form for all those who have a Universal Account Number (UAN).
To withdraw your money, you may now use 'UAN based Form 19' and in effect bypass the employer signature requirement. This facility will be available to all those subscribers whose UAN is activated and seeded with the KYC details like bank account and Aadhaar number. Currently, the form has to be submitted offline, but the EPFO is expected to extend this facility online too.
So make sure that as an employee, you meet these two conditions for any PF withdrawal in future. But before you withdraw the PF amount, let's look at the implications of withdrawal and the time limit set by the government.
When can an employee withdraw his PF
According to the EPF Act, for claiming final PF settlement, one has to retire from service after attaining 55 years of age. The total EPF balance includes the employee's contribution and that of the employer, along with the accrued interest.
There is, however, a window to partially withdraw the amount for those nearing retirement. Anyone over 54 can withdraw up to 90 per cent of the accumulated balance with interest. But what if someone decides to quit his job before reaching 55? Under the existing rule, the employees, in such cases, can withdraw the full PF balance if he is out of employment for 60 straight days.
There was a proposal which restricted employee access to a part of the funds, allowing for the withdrawal of the employer contribution only after attaining the age of 58 years, which stands in abeyance as of now.
The importance of five years of continuous service
Typically, in early and mid-years of their careers, employees tend to switch jobs. After leaving, they have two options with regard to their PF: they can either withdraw it after waiting for 60 days or transfer the balance to the new employer.
PF withdrawal is not taxable if one has completed at least five years of continuous service. If one has switched jobs in less than five years but transferred the PF to the new employer, it will be counted as continuous service. Someone, for instance, works for 1.5 years and then joins another organisation. He transfers his PF balance to the new employer where he continues to work for 3.5 years. Taken together, it will be five continuous years of service for the employee. It is, therefore, better to transfer your existing PF to your new employer.
Tax on early withdrawals
Withdrawing the PF balance without completing five continuous years of service has tax implications. The total employer's contribution amount along with the interest earned will get taxable in the year of withdrawal. Also, the amount of deduction claimed under Section 80C on one's own contribution will be added to one's income in the year of withdrawal. In addition, the interest earned on one's own contribution will also be subject to tax.
The government had introduced Tax Deducted at Source (TDS) on PF withdrawals to discourage premature withdrawals and promote long-term savings. No tax is deducted if the employee withdraws PF after five years. Also, TDS shall not be applicable in case of PF transfer from one account to another. From June 1, 2016, for TDS, the threshold limit of PF withdrawal has been raised from Rs 30,000 to Rs 50,000. TDS will be applicable at the rate of 10 per cent, provided PAN card is submitted.
However, if one submits Form 15G or 15H, then TDS is not applicable. These forms declare that their income would not be taxable after receiving payment of their PF accumulations from EPFO. While Form 15H is submitted by senior citizens (above 60 years of age), Form 15G is submitted by claimants below 60. However, if a member fails to submit PAN card or Form 15G or 15H, TDS is applicable at the maximum marginal rate of 34.608 per cent of the withdrawn PF amount.
Conclusion
Currently (2015-16), the EPF interest rate stands at 8.8 per cent, marginally up from last year's 8.75 per cent. In terms of returns from a debt instrument, EPF certainly stands tall. The money is sovereign-backed and the interest earned is tax-free. In fact, it enjoys the Exempt, Exempt, Exempt (EEE) status as contributions are deductible from income.
The effective pre-tax yield speaks for itself. For someone in the 10, 20 and 30 per cent tax slab, the effective pre-tax return comes to 9.8, 11.08 and 12.73 per cent respectively. Illustratively, for someone paying 30.9 per cent tax, investing in a 12.73 per cent taxable investment product has a post-tax return of 8.8 per cent per annum. There is hardly any debt product that gives such high return with safety and assurance. Therefore, it's better to transfer your PF amount when you switch jobs and avoid the temptation to withdraw the remaining balance.
Source:BankingUpdates
