Many people change jobs each 2-3 years to safe larger salaries and higher alternatives. Nonetheless, amid the thrill of a wage hike, folks usually overlook a vital process that may end up in hefty taxes. We’re referring to the consolidation of Provident Fund (PF) accounts. A Provident Fund is an compulsory retirement financial savings program administered by the federal government and applied in Singapore, India, and numerous different rising nations. It entails contributions from each the worker and the employer, intending to supply monetary help to staff upon reaching retirement age. The fund’s main goal is to make sure that people have a steady supply of revenue throughout their retirement years.
Whenever you begin a brand new job, you obtain a Common Account Quantity (UAN) from the EPFO (Workers’ Provident Fund Organisation). Your employer then opens a PF account underneath this UAN, and each you and your organization contribute to it each month. Whenever you change jobs, you present your UAN to the brand new employer, who subsequently opens one other PF account underneath the identical UAN. Consequently, your new employer’s PF contributions are directed to this new account. It’s important to merge your earlier PF account with the brand new one after opening the latter.
Rule of PF withdrawal
As per the rules, in case your tenure with an organization is lower than 5 years and the full deposit in your PF account is beneath Rs 50,000, you’re exempted from paying any taxes upon withdrawal. Nonetheless, if the quantity exceeds Rs 50,000, a ten per cent Tax Deducted at Supply (TDS) can be relevant. Conversely, when you’ve got accomplished 5 years of service, no tax can be levied on the withdrawal of your PF funds.
Penalties of not merging PF accounts:
By merging your PF accounts, your UAN will consolidate all of your work experiences. Which means when you’ve got labored for two years in every of three completely different firms and have merged your PF accounts, your whole expertise can be calculated as six years.
Nonetheless, if you don’t merge your PF accounts, the period of every firm can be thought of individually. Consequently, if you happen to determine to withdraw funds out of your PF account with out merging, every firm’s two-year period can be handled individually, leading to a ten per cent TDS deduction for every.