PF Transfer: Big Danger If You Do Not Do This After Job Change! A Small Mistake With PF Can Cause Loss Of Lakhs

PF Transfer: Changing jobs is a very common occurrence in today’s corporate world. However, amidst the excitement or busyness of joining a new job, many forget a very crucial task: transferring the old Provident Fund (PF) account. Many think it’s fine to leave the old account as it is and deal with it later. But experts warn that this minor negligence can lead to significant financial loss in the future. Calculations show that the cost of this mistake could result in a loss of over a lakh rupees.

Why Does Not Transferring PF Cause a Loss of ‘Lakhs’?

Employees’ Provident Fund (EPF) is one of the best instruments for long-term savings. Currently, it offers an interest rate of approximately 8.25%. Maintaining the continuity of the fund is essential to get the benefit of compounding interest.

• Loss of Interest: If you do not transfer the old PF balance to the new account, that money remains isolated. The opportunity to build a large corpus over the long term is lost. In some cases, it has been observed that keeping a separate PF account without transferring can result in a loss equivalent to approximately 1.5 to 1.66 lakh rupees within 5 years, due to interest and tax implications. This loss is even higher for those in high tax slabs.
• Dormant Account Issues: According to rules, if no contribution is made for a long time, the old account may become ‘dormant’ or inactive. In such cases, the tax-free benefit on the interest of that account may be lost, and the earned interest could be treated as “Other Income” and taxed accordingly.

The Danger of Withdrawing Money Before 5 Years

Many consider withdrawing their old PF money after leaving a job. However, if your total service tenure is less than 5 years, withdrawing money will attract a heavy penalty.

• Income Tax and TDS: If money is withdrawn from PF before completing 5 years of service, Income Tax and TDS are deducted on the entire amount, including interest. Therefore, it is wise not to withdraw money in a hurry.

Impact on Pension

The Employees’ Pension Scheme (EPS) is closely linked with PF. If you do not transfer your PF, the ‘service years’ from your old job are not added to the new job.

• Fulfilling a specific timeframe or service years is essential to qualify for a pension.
• Keeping multiple PF accounts without merging them significantly increases the chance of a reduced pension amount.

EPFO Guidelines and What You Should Do

According to EPFO rules, an employee must transfer the old PF account to the new organization’s account when changing jobs. Previously, one had to fill out Form 13 for this, but now it can be done very easily online.

Actionable Steps for You:

1. Immediate Transfer: After joining a new company, the first task should be to transfer the old PF balance to the new ID via the EPFO portal.
2. Update UAN: There is only one UAN (Universal Account Number) for a lifetime. Keep your Aadhaar, PAN, and Bank details updated and place an online transfer request.
3. Be Patient: Do not break your PF unnecessarily. Let it grow as long-term retirement savings to enjoy the full benefit of tax-free compounding.