EPFO: All the employed people in India have PF accounts. In India, PF accounts are operated by Employee Provident Funds Organization i.e. EPFO. These accounts are also seen as a kind of savings scheme.
Every month 12 percent of the employee’s basic salary is deposited in the PF account. The company deposits the same amount. You can also take pension from this. This Provident Fund (PF) is a support for old age. Many people have the habit of withdrawing the money deposited in PF as soon as they change jobs, whereas this habit is not right. This can cause a big loss in the future.
Actually, most people think that now the company has changed, so it would be right to withdraw money from the old account. Many people also withdraw PF due to the need of cash in a hurry. By doing this they get immediate relief, but it is not good for financial health. Let us tell you that the interest rate on EPF for the financial year 2024-25 has been fixed at 8.25 percent, which is quite attractive compared to other options in the market.
Withdrawing PF will cost you a lot
Let us tell you that interest on PF is added every year and this interest compounding increases your amount manifold. If you withdraw money as soon as you change jobs, then the benefit of this compounding ends. Understand it like this, if someone deposits money in PF for 10 years and withdraws the amount after changing jobs repeatedly, then the fund will be very less by the time of retirement. Along with this, tax has to be paid on withdrawing money before completion of 5 years. It means that the money which could have secured your future becomes a loss deal if withdrawn in a hurry. In such a situation, there is a need to pay special attention to these things.
Transfer your PF account
If you change your job, the best option is to transfer your PF account to the new company. In today’s digital age, this process has become very easy. Money can be transferred in a few clicks through the online UAN portal. This will keep adding to your PF balance and interest and you will get a large amount at the time of retirement.
Pension is not available if the entire amount is withdrawn from the account
Both the employee and the company contribute to the PF account. 12 percent of the employee’s salary goes to the PF account and the company also contributes 12 percent to the employee’s PF account. Out of the company’s 12 percent contribution, 8.33 percent goes directly to the EPS Fund (Employee Pension Scheme Fund). The remaining 3.67 percent goes to the PF account. If an employee contributes to the PF account for 10 years and later leaves the job, then to avail the pension, the employee will have to keep his EPS fund active.
If the employee withdraws the entire amount present in his PF account when needed but his EPS fund remains intact, then he will get pension. However, if he withdraws the entire amount from his EPS fund, then he will not get pension. In such a situation, it is very important to understand that one should not withdraw money from EPS fund to avail pension benefits.
There will be relief in tax
A big advantage of EPF is that it also helps in saving tax, but after a limit it can be taxed. If a person’s EPF contribution in a year is more than ₹ 2.5 lakh, then the interest received on the extra money will come under the purview of tax. Interest received on contribution up to 2.5 lakh is tax free. If you have invested money in EPF for 5 consecutive years, then there will be no tax on withdrawal of money. But if the account becomes dormant, that is, no money is deposited in it for 3 years, then the interest received on it will come under tax.
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