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EPF is applicable in organisations with 20 or more workers. It pertains to the organised sector of the economy

Employee Provident Fund (EPF) is one of the most trusted and guaranteed savings instruments in the country. It offers an 8.50% rate of return. In comparison, PPF which is a darling of the masses offers only highest return at the rate of 8.50%. On the other hand, Public provident fund or PPF gives you only 7.1% annually.

Any salaried person should have an EPF account, as this is probably the best retirement savings scheme. But what happens if anyone does not transfer his/her EPF account after changing jobs?

Transfer of EPF account

Due to the lack of Universal Account Number or UAN and PF account number and some formalities required for transfer of the EPF account, it has been found that a section of employees don’t transfer their previous EPF account to the new place of work.

In that case, the old EPF account continues to earn EPF interest rate but due to the non-contribution from the very first month of the new job in the previous account the interest earned is becomes taxable.

It also hits the continuity of the PF contribution which finally makes a negative impact on the pension benefit of the EPF account holder.

“If an employee fails to transfer his/her EPF account after changing the job, then he or she will be losing the continuity of the EPF account. EPFO gives pension benefit to the subscribers under EPS Scheme that requires at least 15 years of continuous contribution in the EPF account.” said Arvind Agarwal, Income tax expert.

A person must transfer the EPF account at the time of switching jobs. One should do that by linking that EPF account with the new UAN. It will help the employee to maintain continuity of the EPF account otherwise the person will lose continuity, added Agarwal.

Inactive account

Sometime an EPF account might become inactive due to a variety of reasons.

If a person leaves India for some reason permanently, or retires after 55 years and does not withdraw money from the account within 3 years, the account would turn inactive.

If an EPF account holder does not file an application for settlement or request for withdrawal within 36 months of leaving a job, the account will be terminated.

Tax on EPF

As per current law, an employee’s own contribution to the EPF account is not taxable. However, effective from April 1, 2020, onwards, employer’s contribution to the EPF account can become taxable if it exceeds Rs 7.5 lakh in a financial year.

Besides, there are two situations where the interest earned in EPF becomes taxable. From April 1, 2021, onwards, if an employee’s own contribution to the EPF account along with excess contribution via Voluntary Provident Fund (VPF) exceeds Rs 2.5 lakh in a financial year, the interest earned on the excess contributions will be taxable.

Points to remember

For 2019-20, EPFO offered an interest rate of 8.50%. In 2018-19 it was 8.65%.

If you change your job, you must transfer your EPF account otherwise you will not get all the benefits.

Make sure that if you have multiple EPF accounts then all the accounts should be linked to the same UAN number. If you retire before reaching the EPFO retiring age of 58 years, you must withdraw your PF corpus within 36 months of your retirement.

You have to claim the money in the account within 36 months of exiting a job and not joining a new one.