Are you an EPF member and feature changed jobs? If so, make sure which you switch your old EPF balance to the new account with the modern-day business enterprise. Though the Universal Account Number (UAN) stays the identical across EPF bills, remember that having the equal UAN isn’t similar to balance switch. The earnings tax policies governing the Employees’ Provident Fund (EPF) read with the Income Tax Appellate Tribunal (ITAT) choice in ACIT as opposed to Rajnrekar in November 2017 makes it compulsory to merge old EPF money owed into your cutting-edge EPF account or face tax implications.
EPF is a obligatory deduction for personnel operating in corporations with 20 or more people. Here, 12% of your basic profits and dearness allowance is contributed via the company and another 12% is deducted by the business enterprise from your profits and brought in your EPF account. When you turn jobs, the new organisation opens a brand new EPF account. If you overlook to transfer the balance accumulated within the old account into the brand new one, it may increase your average tax liability.
An EPF account with a business enterprise becomes inoperative after you go away the process. However, the account keeps to earn hobby, that’s taxable, in keeping with the ITAT selection in ACIT as opposed to Dandekar case, considering the fact that you’ve got left the process. If you have taken a ruin from paintings, come to be self-employed or joined a non-EPF-blanketed company, you’re technical “no longer employed” for the functions of EPF. In this scenario, the interest which accrues every year into your vintage EPF account becomes taxable even in case you do no longer withdraw any money from the account.
If you be a part of a brand new organization blanketed through EPF, the new business enterprise opens another EPF account. Since you are hired for the purposes of EPF, the hobby in this new EPF account isn’t taxable. And if you switch the balance to your antique EPF account to this one, the interest on the earlier corpus may even become tax-unfastened.
In many instances, the two debts can be connected via your Universal Account Number (UAN). However, “UAN linkage isn’t similar to switch of stability. Interest for your old account will no longer be tax-exempt sincerely due to the fact it is connected to the identical UAN as the brand new account. You need to actively switch the stability,” stated Madhu Damodaran, director, HR enterprise offerings, Co-Achieve Solutions Pvt. Ltd.
Not transferring your vintage EPF balance in your new account will also mean that the 5-year qualifying period for tax exemption is reset to the date of the brand new account. Let’s understand this with an example. Suppose an employee works at organization X for three years and then actions to business enterprise Y for any other three years. He has EPF bills at each business and fails to merge them. He then leaves agency Y to begin his very own commercial enterprise and withdraws the balances from both the sooner EPF bills. Here, the withdrawals could be taxable even though he has finished six years of service in overall. His provider length isn’t always counted due to the fact he failed to switch his balance in business enterprise X to organisation Y.
Another tax implication of failure to switch your EPF stability is that old employment intervals will no longer count number for pension eligibility. As a whole lot as 8.33% of an company’s 12% contribution is diverted to Employees’ Pension Scheme (EPS). After 10 years of continuous carrier with an enterprise in the EPF gadget, an worker becomes eligible for pension below EPS after attaining the age of 58. Service intervals with vintage employers count number, supplied antique balances are transferred to the cutting-edge EPF account. “The 10 years’ service period required for eligibility for EPS may additionally no longer get fulfilled if antique balances aren’t transferred to the current agency. For the cumulative length to be counted, switch of EPF stability is essential,” stated Amit Gopal, predominant, India Life Capital Pvt. Ltd, a Mercer employer that is an funding advisory company.