In India, the Provident Fund (PF) is a popular retirement savings scheme that helps employees build a financial corpus to ensure a secure future. Transfer of funds to a new employer using the PF withdrawal rules for individuals who are changing jobs is of importance. This article gives a comprehensive account of these rules and explains how does the process and also includes NSE Indian Rupees (INR) examples.
PF Withdrawal Rules
The Employees’ Provident Fund (EPF) account is portable, meaning that when an employee changes jobs, the balance of the existing EPF account can be transferred to the new employer. At the latest update, the process is simplified by the Universal Account Number (UAN) system, because each worker bears a unique UAN, which does not change over his/her career.
Eligibility for Transfer or Withdrawal
- Service Continuation: When an employee carries on service but changes employers, transfer of the PF balance is a more suitable option as opposed to withdrawing the balance.
- Unemployment Period: Part withdrawal is allowed when unemployment persists for more than two months.
Steps for Transferring PF
- Activation of UAN: Verify that UAN is enabled and associated with the corresponding EPF accounts.
- Update KYC Information: Verify that all Know Your Customer (KYC) details such as Aadhaar, PAN, and bank details are updated in the UAN portal.
- Submit Transfer Request: To transfer PF balance from the previous employer’s EPF account to the new employer’s EPF account, the employee is required to log into the EPFO online portal and make a request to that effect.
- Approval by Employers: [S] Both the old and the new employer must approve the transfer request.
- Processing by EPFO: Process transfer and manipulate balance in new account through the EPFO.
Full Withdrawal Scenarios
After 58 years of age.
Permanent disability or severe health conditions.
Permanent migration or relocation outside India.
With respect to buying a house, get married, or go to school (for certain requirements).
Tax Implications
If the PF is withdrawn before 5 years of continuous service are completed, then the amount is taxed. The calculations for taxation include:
Employee’s Contribution: Added to the taxable income.
Employer’s Contribution: Taxed as ‘Income from Salary’.
Interest: Taxed under ‘Income from other sources’.
Illustratively, when the employee contribution is INR 2,00,000 and employer contribution is INR 2,50,000 and interest earned is INR 1,00,000, the sum of taxable amount would be INR 5,50,000.
SCSS Rules
Senior Citizens Savings Scheme (SCSS) is one more significant financial product, and this product is exclusively available for the people who are above 60 years old. Although not explicitly concerning PF, it is useful to learn about SCSS rules, particularly for older professionals.
Eligibility
Individuals aged 60 and above.
Individuals between 55 to 60 years who have retired on superannuation or taken VRS can invest within one month of the receipt of retirement benefits.
In the SCSS account the limit of sum to INR is 15,00,000.
Interest Rates and Taxation
The interest rate is 7.4% per annum (subject to quarterly revision).
Interest is 100% tax exempt and TDS is levied if interest exceeds INR 50,000 per financial year.
Important Comparisons and Considerations
When comparing PF and SCSS:
Investment Purpose
PF: Main reasons for pension saving based on mandatory contributions by employer and employee.
SCSS: Specifically designed for post-retirement income.
Tax Benefits
PF: Offers tax break under Section 80C for an annual contribution of INR 1,50,000.
SCSS: Gives tax exemption in terms of Section 80C for investment, but the interest earned is taxable.
Return on Investment
PF: Variable, generally around 8-9% interest (subject to annual revision).
SCSS: Fixed at 7.4% (current rate, subject to quarterly revision).
Summary:
Knowledge of PF withdrawal rules is crucial for those changing jobs. Taking advantage of the UAN and KYC update facilitates the transfer of PF balance. Complete withdrawal is allowed in certain cases, but early withdrawal has to be paid with taxes. Especially, learning of SCSS rules for post-retirement finance planning contributes to the development of a holistic strategy.
Carrying over the balance of PF to the UAN portal while changing the employer guarantees the continuity of the retirement savings. Correctly updated KYC details are critical for seamless transfer processing. It is also crucial to be aware that tax consequences for early withdrawals could mean that the ultimate amount withdrawn from the account is taxable.
Taken together, successful planning for and transfer of PF balances, and the responsible use of SCSS for retirement accounts, can make an important contribution toward maintain financial stability. Never forget the tax regulations at the present time, and seek financial counsel to make the appropriate decisions.
Disclaimer:
This article is a general discussion and does not constitute professional financial advice. In financial market investment, there are risks, and investors must weigh the benefits and risks before such decisions are made by following the rules of PF withdrawal and SCSS.
