Are you an EPF member and have modified jobs? If so, ensure which you switch your antique EPF stability to the new account with the modern-day enterprise. Though the Universal Account Number (UAN) remains the equal across EPF bills, understand that having the equal UAN is not 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 obligatory to merge vintage EPF accounts into your cutting-edge EPF account or face tax implications.
EPF is a mandatory deduction for employees working in agencies with 20 or greater employees. Here, 12% of your basic profits and dearness allowance is contributed by way of the organization and some other 12% is deducted by way of the organization out of your income and delivered for your EPF account. When you turn jobs, the brand new organization opens a new EPF account. If you forget about to switch the balance collected in the old account into the brand new one, it can increase your universal tax legal responsibility.
An EPF account with a company will become inoperative once you leave the job. However, the account continues to earn interest, that is taxable, according to the ITAT decision in ACIT versus Ranjrekar case, because you have got left the job. If you’ve got taken a smash from paintings, emerge as self-employed or joined a non-EPF-included firm, you are technical “not hired” for the purposes of EPF. In this situation, the hobby which accrues every year into your vintage EPF account will become taxable even in case you do now not withdraw any cash from the account.
If you be part of a new corporation protected by way of EPF, the new agency opens some other EPF account. Since you are hired for the functions of EPF, the hobby in this new EPF account isn’t always taxable. And if you switch the balance on your vintage EPF account to this one, the interest on the earlier corpus will even turn out to be tax-free.
In many instances, the 2 debts may be linked by way of your Universal Account Number (UAN). However, “UAN linkage isn’t always similar to switch of balance. Interest on your vintage account will now not be tax-exempt in reality because it is connected to the equal UAN as the new account. You need to actively switch the balance,” stated Madhu Damodaran, director, HR business offerings, Co-Achieve Solutions Pvt. Ltd.
Not moving your vintage EPF stability to your new account will also suggest that the five-year qualifying duration for tax exemption is reset to the date of the brand new account. Let’s understand this with an instance. Suppose a worker works at employer X for 3 years after which actions to company Y for another three years. He has EPF money owed at both agencies and fails to merge them. He then leaves corporation Y to begin his very own commercial enterprise and withdraws the balances from each the sooner EPF accounts. Here, the withdrawals might be taxable despite the fact that he has finished six years of provider in general. His carrier period isn’t counted due to the fact he did not transfer his stability in business enterprise X to company Y.
Another tax implication of failure to switch your EPF stability is that antique employment intervals will now not count for pension eligibility. As lots as eight.33% of an enterprise’s 12% contribution are diverted to Employees’ Pension Scheme (EPS). After 10 years of non-stop service with an employer in the EPF machine, an employee becomes eligible for pension below EPS after reaching the age of fifty-eight. Service periods with old employers rely on, furnished vintage balances are transferred to the cutting-edge EPF account. “The 10 years’ service duration required for eligibility for EPS may also not get fulfilled if vintage balances aren’t transferred to the modern-day enterprise. For the cumulative period to matter, switch of EPF stability is important,” said Amit Gopal, most important, India Life Capital Pvt. Ltd, a Mercer agency this is an investment advisory firm.
How to switch
To switch the balance from an old EPF account to a brand new one, you, in reality, ought to log in for your EPF account online with your UAN and password. Go to the “Online Services” drop-down and pick out “One Member – One EPF Account Transfer Request”. Re-input your UAN or the vintage EPF member ID and your account information may be displayed. Select whether or not you would really like your cutting-edge or previous employer to validate the transfer. Now pick the vintage account and generate a one-time password (OTP). Once you input the OTP, a request might be sent to your corporation (modern or previous—each can facilitate transfer to the current EPF account) to process the transfer online.
To switch offline, replenish Form thirteen and post it in your antique or cutting-edge business enterprise.
If you have didn’t declare the EPF hobby in your return, you can revise the return before the give up of the assessment yr. “If the window for revision is closed, it is really helpful to pay the applicable tax with a hobby and file a letter with the profits-tax officer along with computation of tax,” stated Prakash Hegde, a Bengaluru-based chartered accountant.