I withdrew my PF amount every time I made a resignation or job hop, and I am deeply regretting it. To be honest, I didn’t know the value of PF, and the calculation. So, how to calculate PF amount?
PF or Employee Provident Fund is a great long-term investment, and once everybody understands the value it gives, nobody would step up to withdraw it. Am writing this post to educate me, and also others, to be more aware of the EPF benefits and why is EPF important?
What is Provident Fund?
The term PF is commonly used to represent Employee Provident Fund. EPF is long term fund contributed monthly by both employer and employee.
The Basics
What is Employee Provident Fund (EPF)?
A long-term investment amount which is contributed by both employer and employees. Finally, it will be handed over to Employee during retirement.
When any Indian Resident joins any company in India, it is mandatory (as per the Indian Government rule) that the employer should open an EPF account for the Employee.
EPF account can only be opened by the Employer, not by the employee.
Eg., My father retired few years ago from a government job (he served the Electricity board for 20 years). He received lumpsum settlement from the government office. Major lumpsum amount was the PF amount accumulated for over 20 yrs.
12% of your salary automatically goes to Employee Provident Fund (EPF).
What is Voluntary Provident Fund (VPF)?
This is an extension to your Employee Provident Fund (EPF)
Usually, 12% of your basic salary is deducted to contribute to PF; and if you wish to add more, it is possible. In fact, it is recommended. Remember money gets doubled due to compound interest!
Contact your HR to contribute more.
What is Public Provident Fund (PPF)?
PPF account can be opened by any Indian Resident. This is very similar like opening a Recurring Deposit account. Employer will not be in this picture at all.
EPF and PPF is completely different.
Is it good to withdraw EPF before retirement?
No, it’s not.
Why? It’s connected to Compound Interest. Compound Interest is an eight wonder in the world. Any investment scheme which offers you compound interest is a gold mine.Do not destroy your gold mine.
Is adding Nominee required?
Highly recommended!! Your loved ones can claim the money on your behalf incase of your demise.
PF is compounded at a rate of 8.5 to 9.5% which means any person with a basic salary of Rs 25000 could accumulate 1.65 crores in 35 yrs .
How to calculate PF amount?
Use this free simple calculator to see how the PF amount is calculated and see how it grows in the first year. This is an excellent solution for beginners to understand how PF works and grows. You may customize this calculator on your own way to see how it grows in the future.
I’ve made sure the calculator is 99.99% correct by verifying the calculation examples given across the internet. I’m sure this calculator would be of great help to you!
This is Monthly PF Calculator for 1 year. Find the interest rate for the financial year and divide by 12. Enter into the interest rate % cell. The PF Calculation formula is already plugged into this excel sheet. All you need to do is only enter the Basic Salary.
Employees can get loan against their accumulated funds in employee provident fund.
The Benefits
The Employer also contributes 12% for you
It is mandatory that you should contribute 12% of your salary to PF. The company automatically deducts from your take-home salary, plus the employer also contributes the same 12% and sends it to the government.
So, remember to have 1 PF account across all employers to avoid confusions during withdrawals.
PF compounds annually.
Compound interest is the eighth wonder of the world. Interest on interest is great money growth.
Did you notice the word “compounded”?PF is compounded at a rate of 8.5 to 9.5% which means any person with a basic salary of Rs 25000 could accumulate 1.65 crores in 35 yrs . Look at the growth!
Not only PF, do NOT withdraw any authentic money schemes which have Compound Interest. It’s a HUGE loss.
PF is safe, secure & low risk.
PF is safe because it is with the government. People say ” It is hard to do huge amount as PF withdrawal from the government”, but it is myth. Now the government has a well built online system, and PF withdrawal is far easier than ever.
PF is taxable on premature withdrawals
EPF is taxable at 10 % when withdrawn before 5yrs. The tax rate of 10% is very high.
UPDATE: Full EPF withdrawal is NOT allowed now, only 50% is allowed (This isn’t applicable for women employees who’re leaving employment due to marriage, childbirth). The remaining 50% will be settled only at the age of 56.
Or, if in case you have plans to buy a flat or home, 90% PF withdrawal is allowed.
10% tax applies for the 50% PF withdrawal that is done before 5 yrs.
Tax-free for PF withdrawals of up to Rs 50,000
“One of my friends withdrew his PF INR 1,00,000 in his 4th year after leaving the job, and paid tax of INR 10,000 as a result of premature withdrawal. If he had waited for a year, he could have saved INR 10,000.”
VPF: Contributing more to EPF
Usually, 12% of your basic goes to PF, but you wish to add more, it is possible. In fact, it is recommended. Remember money gets doubled!
PF: Any employee could avail a loan against it
Employees could take a loan against their accumulated funds in employee provident fund. However, it depends on permissible rules and circumstances. Loan for housing, marriage, childhood education is permitted.
Remember Government employees receive a huge amount on retirement? It’s PF. If you had noticed very well, they take loans on PF but they never withdraw it.
Conclusion
Never go for PF withdrawal as long as you are in the service of employment.
References
http://www.thehindu.com/business/Economy/tax-on-premature-pf-withdrawal/article6956039.ece
Any company which has more than 10-20 employees should open a EPF account for employees. So if you join a very small company which has less than 10 employees, you’ll NOT have a PF account.
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Hi Prabha,
Good Blog !
As you wrote that if we withdraw the PF before 5 years, then its 10% taxable.
I have worked in my –
1st Organization = 2.5 years
2nd Organization = 1.5 years
3rd Organization = 1.5 years
With each of these 3 organizations having provided me with 3 different individual PF numbers. All 3 PF accounts have some funds now. I have not transferred them.
My query : As you can see, I have worked for more than 5 years totally but not 5 years in a single organization. Also, I have 3 different PF numbers with some funds in each of them.
So, please tell that on withdrawing, whether my total PF would be taxable ??
Thanks in anticipation !
Regards,
Nivesh Modh
Thanks for the compliment, Nivesh!
Answering to your question, as you’ve not transferred the PFs to your new PF account, withdrawal from each account becomes taxable if the PF amount has more than 30,000 rupees.
So, if any of your PF account holds more than 30K, then that amount is subject to 10% tax. Or, if all the 3 holds more than 30k, then each amount in the account is subject to 10% tax.
The following article on Hindu tells it clearly
http://www.thehindu.com/business/Economy/tax-on-premature-pf-withdrawal/article6956039.ece
Also, by now, your PF account might have been in-operative due to lack of PF contribution each month.
Try checking your PF account status using the following steps.
I would advise you to do the following steps in order to withdraw or transfer funds your hard earned money
Step 1: Check the epf balance of your each account using this link. This link tells whether your account is operative or in-operative
http://epfoservices.in/epfo/member_balance/member_balance_office_select.php
Step 2: In case of inoperative PF account, use the EPF online help desk (the govt has come up with this help desk initiative this feb) to withdraw or transfer inoperative PF funds.
The online help desk asks your employment details, PF number, contact details etc. Keep those handy!
http://timesofindia.indiatimes.com/india/EPFO-launches-drive-to-help-activate-inoperative-accounts/articleshow/46293899.cms
Once submitted, you get an acknowledgement number, note it down. EPF help desk will contact you to help you transfer or withdraw your PF funds
Step 3: If the PF account is active, contact your current company HR to transfer for further details, or your previous company to withdraw it.
Hope, you got a clear idea now!
My personal advice: Try transferring all your PF accounts to your new account, and keep it safe. This is the best long term investment, so try not to withdraw your PF money.
Hello Mam,
I have a small query. I read somewhere that it is illegal to withdraw pf money while switching jobs if you get another job within 2 months after resignation from previous employer. I had withdrawn my pf money under similar circumstances. Is that going to be any problem for me??
Hi Rahul,
No worries, it’s not going to be a problem. Many people (including me) have withdrawn PF while job switches, but going forward don’t do it. NOT that it creates problem, it is a loss for you. Keep that money safe in PF account, it grows every year….
I have changed my job. In the last company, they provided PF and UAN No to me and I worked there for 7 months. I don’t have a clear idea about PF. How to link PF account to my new salary account? The company I am working now doesn’t have PF option. Please give a clear idea. I am confused and worried. What should I do?
Hi Sumit,
Check your payslip whether an amount for PF is deducted – if the deduction isn’t there then you can re-confirm that your current new employer has no PF option.
Companies less than 20 employees or some international companies may not have PF option, so that shouldn’t be a problem.
Keep your PF and UAN number safe, and produce it to your next new employer to link your PF account.
Linking or not linking your PF account to new employer is not going to affect your employment at all. So don’t be confused and worried.
Your money in the PF account remains safe until then, keep checking PF balance online with this site http://www.epfindia.com.
Hi Prabha, Is it good to increase the PF amount other than saving the same ammount under some bank scheme?
Which one is better, saving more money through PF or letting the PF at 12% only and rest doing the saving under some bank scheme?
Hi Parvesh,
Great question!
Any PF amount you add to your PF account is subjected to compound interest: 8.65%. Meaning? Interest on interest which is very good.
The banking schemes you are mentioning: do a detailed analysis on the interest rates they pay. are they subjected to market risks?Do interest rates fluctuate every year?Also, consider inflation along with the calculation.
Compare and decide…
My suggestion: If you don’t have any long term investments, consider putting a decent amount in your Provident fund account using VPF, and also in Public Provident Fund (PPF) account. These are good and safe long term investments.
For short-term investments, you will have to do a detailed analysis. Safe ones are FDs, RDs etc., but this is totally upto you. I would advise to understand each and every banking scheme’s calculation and then invest.
Hope this helps!!!
Urgent query–
1. Supposing your planning to work outside india in the next 1 year and most likely stay there for 3 to 5 years and further is it a good idea to then withdraw the PF ?
2. 3 years I was with a company and have still not withdrawn the PF – the amount is around 3 lakhs I believe after two years of interest but they say they don’t pay interest after two years ., I left in the year 2011-12
3. Then I was working in a second Company for 2 years and again after two years left in the year 2015 end and not working currently since last two years trying to peruse higher studies and or work outside india and may search for another job in india to work for the next 1 year before I finalize my travel out of india
After leaving my job it was been close to 2 years
So both are seperate PF accounts and lying there
What do you recommend I do ??
Urgent query–
1. Supposing your planning to work outside india in the next 1 year and most likely stay there for 3 to 5 years and further is it a good idea to then withdraw the PF ?
2. 3 years I was with a company and have still not withdrawn the PF – the amount is around 3 lakhs I believe after two years of interest but they say they don’t pay interest after two years ., I left in the year 2011-12
3. Then I was working in a second Company for 2 years and again after two years left in the year 2015 end and not working currently since last two years trying to peruse higher studies and or work outside india and may search for another job in india to work for the next 1 year before I finalize my travel out of india
After leaving my job it was been close to 2 years
So both are seperate PF accounts and lying there
What do you recommend I do ??
What are the best options with me ??
Also another seperate query is for another family member –
4. Supposing the UAN was not activated and we have worked in a company and we have only the PF number can the next new company create a UAN and a new PF account number and can we close the previous PF account of the previous company and withdraw our money now from the previous company .. please note there is a Gap between the work of more than 1 year between the two Companies and were not working during that duration and had left the PF account as it is in the X company and had not withdrawn it
Also in this case the PF was for 6 years in the X company and so on withdrawal won’t be charged interest right ??
Also will in both queries and the cases – while withdrawing PF from each X company we will get 100% money withdrawal right ? It is not 50% of the PF amount given to me while withdrawing right ??
Hi Ravien,
Try merging all your PF accounts to 1 UAN, by contacting your current HR. This is easy…
Or, you could link everything under 1 umbrella using UAN by yourself.
https://www.basunivesh.com/2015/12/17/epf-uan-registration-or-activation-is-now-online/
No you can’t withdraw all your EPF funds, only 50% of the total amount is allowed to withdraw. Rest will be settled only at the age of 56. This is the new rule now.
For withdrawals after 5 yrs of employment, there is no TDS.
Based on the latest government rule, inoperative or old PF accounts are now made to generate interests. So don’t ignore this opportunity, link it with your UAN
What I would suggest is, merge all your accounts under 1 UAN either by yourself or contacting your employer, before your turn out to be an NRI. Once merging is done, you can start tracking how much your money is growing year by year. A lump some money will be available to you at the age of 56, when you retire.
Once you turn into an NRI, you won’t get a chance to earn compound interest on long term investments like this. So don’t withdraw.
Hi Prabha,
I have a question, Please suggest me.
I have allotted two UAN Nos. One is from my Previous Employer and one is from my Present Employer. I want to withdraw the EPF amount associated with the old UAN No. Here I want to mention it that there only a 15 days gap in between two jobs and both the establishments are in two different States.
My question it that, is there any option that they can trace out my present status of employment and decline my PF Withdrawal Application or is there other any way to withdraw my old EPF amount as it very urgently required.
Kindly suggest me.
Try merging both the UANs into one, looks like this can be done online.
Now that the systems are strict, I personally feel your job shift could be traced. I would suggest merging the accounts to 1 UAN to avoid any future complications.
May be this post from basunivesh might help you
https://www.basunivesh.com/2016/09/23/allotted-two-uan-numbers-how-to-merge-or-deactivate-epf-uan/
Also, I wouldn’t suggest anybody to withdraw EPF funds because it earns you compound interest..All other investments gives you only simple interests which is less money growth. So think twice before you withdraw.
Hi prabha,
I have a query, I was working in a company for 3 years.Now I left my job because of personal reasons. If I withdraw my pf money after 2 years it is tax free?or after 6 month if I joined other company, for 6 months no amount has been saved in my pf account is it affect?
Hi Jyoti,
Your PF withdrawal is tax free after 2 yrs., i.e.., the time period should be total 5 yrs after the date of PF account opening.Per the new PF laws, you can withdraw only 50% of your total PF amount before age 56.
The 6 month gap in the PF funds shouldn’t be a problem. Use the same PF account number for your PF funds with your new company.
Hope it helps!! Thanks
Hello
hii prabha,
Loved your explanations for above questions. They are very precise and helpful.
With that i also have queries related for EPF.
Please read one by one and answer in the same sequence-
1. In the employer contribution of 12%, is that 12% deducted from employee basic pay or is it the extra amount which is to be paid by the employer?
2. As read on net, can a employee contribute more than 12%?
e.g. can a employee contribute 15% of his basic pay and then so the employer only has to contribute for
remaining 9%
OR
if the employee wants to add more amount to his EPF A/c, can he do so! ?
3. Is PF is compunded monthly or annually? What are the benefits of contributing for PF?
4. What are the different rules for withdrawing your PF?
5. How tax is deducted for withdrawing your PF?
meaning, when you withdraw your PF money, will it be auto-deducted from your account or have to be paid after
withdrawing.
1. The employer’s contribution is separate, employee’s is separate. Employee’s contribution is 12% of basic pay whereas employer’s contribution 12% is extra
2. Employee can add more but employer’s remain the same, as far as I know.
3. PF is compounded annually, your interest + principal grows more and more. Normally, no investment instruments give you compound interest. Compound interest is the eighth wonder of the world.
4. EPF cannot be withdrawn fully, only 50% can be withdrawn. Pre-mature withdrawals attract tax.
5. Usually, as far as I know, TDS applies to your Pre-matured PF.
Thank you for your answers Prabha @ madbucks. They are very precise.
I just want to know how Compound Interest is calculated?
Meaning, i know that it keeps on adding interest to your previous interest and principal amount but
how does it actually works with an EXAMPLE.
For instance, we can take a man is getting a salary of INR 10000/- per month and he is fixed in his deposit and keeps adding 10000/- of his salary every month, also he does not withdraws any amount out of it.
He deposits that amount into HDFC bank where he gets 4% interest on quarterly basis.
Also, suppose say he started in the month of January so he got his interest for (January to March) of 30000 on 1st of April.
The interest which he gets is it fully 4% = 1200/-
OR
4% divide by 12 months * 3 months ( 0.04/12 * 3) = 300/-
Well, all the fixed deposits run on Simple Interests. No private financial guys give you Compound interest because that is a huge loss for them.
Mostly Compound interest option is given only by the government for the benefit for its people. Few of the best are EPF and PPF(Public Provident Fund). Initially both SI and CI yield same for the first year. Compound Interest benefits you on long term.
The following link on quora educates you very well..
https://www.quora.com/What-is-the-difference-between-simple-interest-and-compound-interest-Can-you-give-3-examples-of-where-each-one-would-be-used
Simple interest is calculated on its principal only, how much ever your interest is, you’re not allowed to add it to your Principal; whereas Compound interest is calculated on Principal+accumulated interest. Automatically you earn more on Compound interest.
Try comparing your fixed deposit scheme with PPF (Public Provident Fund scheme). PPF is the best investment tool for any Indian, especially on compound interest.
What is the difference in transferring the PFs of previous organization to the new PF account of the current organization as against linking all the PF accounts to a single UAN?
Hi Abhinav, linking all accounts to UAN has better advantage than transferring to new PF account. You get complete control of all your PF accounts under 1 UAN. You need not contact your employers for anything.
Transferring is an old practice, which has less advantage. For e.g.., you woulnt be able to track individual amount of each company PF if your account are clubbed. Have consulted a certified specialist on the front ,and he recommended to go for linking all you PF accounts to 1 UAN rather than linking.
Thanks for the prompt response!
Yes I hv linked my previous two PFs under a single UAN. Nw I shl b moving to a 3rd organisation so started wondering wld there be a problem when I want to withdraw at the end i.e aftr 56 yrs ??
Thank you for your response Prabha.
Also have a question regarding shares.
Can it be taken as a indication that if a company sales increases, the price of its shares is also going to increase.
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Hi,
My question is How to pay last one year pf of employee ?
i have deduct it last 1 april 2019 to Feb 2020 but not pay to pf.. so tell me how to pay ?
I believe this is a legal question. You should need to contact a financial advisor.
Hi,
Nice write up, but am stiĺl having a bunch of questions.
If I opt for VPF will the interest be separate or would it be clubbed with existing PF?
Where can i find a calculator to see how much i save if i opt for VPF? Like at maturity? EPF and VPF included.
Thank you
Thank you so much Prabha.
I would share my experience with pf. I worked for one software company for 36 months and after I moved to another company. All pf accounts are tagged under one UAN. Recently I just verified how much balance in account, I shocked to see in previous pf account have 50+ negative transactions and I suppose to have as per my calculations around 2.35Lac sum of employee and employer share. But now around 55K. I raised so many grieviances to get clarity and rectification. As you know the govt services never up to mark. Lets say if this problem arise while I reach 55years and I would like to withdraw. So much problem with these organizations. Right govt wants entire country into privatization.
I’m still in confused state, what to do my missing balance, whom to ask.
Please through some light on this.
Test
SBI ppf only allows for 5 year extension from the 15 yrs that we are to be invested in.. How and where are the 30 years plans coming from in here. can you please guide us in this.