Are you an EPF member and have modified jobs? If so, ensure you switch your antique EPF stability to the modern enterprise’s new account. Though the Universal Account Number (UAN) remains equal across EPF bills, understand that having an equal UAN is not similar to the balance switch. The earnings tax policies governing the Employees’ Provident Fund (EPF) read with the Income Tax Appellate Tribunal (ITAT) choice in ACIT instead of 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. Some other 12% is deducted by the organization from your income and delivered to your EPF account. When you turn jobs, the new organization opens a new EPF account. If you forget to switch the balance collected in the old account into the 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, according to the ITAT decision in ACIT versus the Ranjrekar case, the account continues to earn interest, which is taxable, because you have left the job. If you’ve taken a smash from paintings, emerged as self-employed, or joined a non-EPF-included firm, you are technically “not hired” for EPF. In this situation, the hobby which accrues every year into your vintage EPF account will become taxable even if you do not withdraw any cash from the account.
If you are part of a new corporation protected by EPF, the new agency opens another 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 earlier corpus interest will be tax-free.
The two debts may often be linked by 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 because it is connected to the same UAN as the new account. It would help if you switched the balance actively,” stated Madhu Damodaran, director of 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 new account’s date. Let’s understand this with an instance. Suppose a worker works at employer X for three 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 commercial enterprise and withdraws the balances from each of the sooner EPF accounts. Here, the withdrawals might be taxable even though he has finished six years of a provider in general. His carrier period isn’t counted because 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 interval will not count for pension eligibility. As lots as eight., 33% of an enterprise’s 12% contribution is diverted to the Employees’ Pension Scheme (EPS). After ten years of non-stop service with an employer in the EPF machine, an employee becomes eligible for a pension below EPS after reaching the age of fifty-eight. Service periods with old employers rely on; furnished vintage balances transferred to the cutting-edge EPF account. “The ten 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, is an investment advisory firm.
How to switch
To switch the balance from an old EPF account to a brand new one, you should log in to your EPF account online with your UAN and password. Go to the “Online Services” drop-down and pick “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 you would 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 giving up the assessment yr. “If the window for revision is closed, it is beneficial 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.