Do you need to transfer your PF when you change a job? Now no more

Over the past few decades there has been a shift in the ideology of professionals – where shorter job stints have become the new norm. As professionals change jobs frequently – this creates an issue whenever it entails a shift of the Employee Provident Fund (EPF) account from a previous employer to a new employer.
Let us understand the issues through an example of Sudha, an IT professional who works as a salaried employee at Idyllic Pvt Ltd. Her employer (Idyllic Pvt Ltd) opened an employee provident fund (EPF) account for her when she joined on April 1, 2018. Both Idyllic Pvt Ltd and Sudha contributed 12 percent of the Sudha’s basic salary (Basic + Dearness Allowance) towards this fund every month. This contribution made was subject to tax-deduction under Income tax laws.
This EPF account serves as a saving scheme aimed to create an adequate retirement corpus for her. If Sudha retired after a few years of her service at Idyllic Pvt Ltd she would receive the entire contribution (both employer and employee contribution). This EPF fund would earn the prevailing interest rate of 8.5 percent p.a.
However, a problem would arise if, after four years of service at Idyllic Pvt Ltd, Sudha wants to change her job to Dida Pvt Ltd, another IT firm. She has two options in that case a) Sudha can withdraw the amount if her joining date at Dida Pvt Ltd is more than two months from the last date of service at Idyllic Pvt Ltd i.e. she remains out of service for 2 months or b) Sudha can transfer the EPF amount to Dida Pvt Ltd if she is joining immediately.
EPF rules state that when Sudha changes her job to Dida Pvt Ltd, a new EPF account is to be opened. Sudha is required to transfer the money held in the EPF account with Idyllic Pvt Ltd to the one in Dida Pvt Ltd. This can be done online through the Member Sewa portal, provided her Universal Account Number (UAN) is linked to her Aadhar number. If Sudha’s UAN is not linked with her Aadhar, she will have to complete these formalities by submitting a new form to Dida Pvt Ltd (her new employer).
Why does Sudha need to ensure continuity in the EPF account contributions? If Sudha closes her old account at Idyllic Pvt Ltd before 5 years or withdraws the amount, she will be taxed. However, if she transfers the amount to Dida Pvt Ltd, she continues to enjoy the benefits of interest rate earned at 8.5 percent. It is important for Sudha to transfer her EPF account from Idyllic Pvt Ltd to Dida Pvt Ltd to ensure that the continuous service period is correctly depicted for the purpose of calculation of pension for the Employees’ Pension Scheme (EPS) and for income tax purposes.
Soon, Sudha will not have to worry about continuity of EPF account contribution or transferring or merging her EPF account when she changes her job from Idyllic Pvt Ltd to Dida Pvt Ltd. This will be possible due to a technology initiative undertaken at the Employee Provident Fund Organisation (EPFO). This initiative will help develop a centralized IT-enabled system by C-DAC. This system will enable the de-duplication and merger of all PF member accounts. It will remove the requirement for Sudha to transfer her EPF account whenever she changes a job – irrespective of the number of times she changes a job.
At present, India has 9.45 million EPF subscribers (New EPF subscribers – Members exited + Members re-joined and re-subscribed). Of these 63 percent EPF subscribers are in the age group 18-28 years old. With more than 42 percent Indians employed in service sector (which includes the IT sector) followed by 25 percent in Industry and the remainder in agriculture .
The IT sector in India employs 4.5 million people and is faced with a high attrition rates 7-20 percent. This means that every time an IT professional changes their job, they are required to transfer their EPF account. The new initiative will bring respite to millions who may have faced issues of discontinuity on the EPF accounts due to account transfer hurdles.
The author, Prof. Jaslene Kaur Bawa, is Assistant Professor – Finance at FLAME University. The views expressed are personal

Do you need to transfer your PF when you change a job? Now no more

 

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