Employee provident fund account

1. Will the contributions be credited to the old EPF account he had in ABC, prior to resigning from that company?

Yes, Legally it is mandatory to transfer EPF Account at the time of job change. But, people generally don’t do it; instead of transferring, they withdraw the amount.

In case of EPS, if the service period is less than 10 years, you’ve option to either withdraw your corpus or get it transferred by obtaining a ‘Scheme Certificate’. Once, the service period crosses 10 years, the withdrawal option ceases.

2. Will he have to open a new EPF account once he re-joins ABC? In this case, he will have two concurrent accounts in the same company and he will seek to transfer the corpus from the old account to the new.

Not necessarily, if you don’t transfer your previous balance, your previous accounts are live and accessible. You can withdraw or transfer the balance to your current PF account.

3. What are the tax implications of this whole exercise?

A: In case you are a member of recognized provident fund it depends on if contribution is over 5 years or not, including transfers from different companies.  For ex: an employee who has worked with X company for say 3 years, then he resigned from that organisation and joined Y company, wherein he worked for 2 years, then resigned from there to join establishment for 2 years but during these 7  years of service he has not withdrawn but transferred his Employee provident fund, then we say continuous service of 7 years.

If you withdraw before completing a period of 5 years, then all your previous years income gets recomputed as if the fund was unrecognized from the very beginning  (i.e., the tax benefits you received on your own contribution u/s 80C/88 in earlier years will get forfeited) and further the employer contribution and interest received will be added to your current income subject to relief under section 89. In other words Payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).

I-T provisions provide that the trustees of a recognised PF or any person authorised by the regulations of the fund to make the payment of the accumulated balance to the employee should deduct tax at source(TDS) while paying the amount. Further, the person liable to deduct tax has to issue the certificate of tax deducted at source .

4. Mention in Point 3
5. What do you suggest as the best course of action? 

The good news is that even if you don’t transfer your previous balance, your previous accounts are live and accessible. You can withdraw or transfer the balance to your current PF account.

However, remembering your employer and your EPF number may not be easy. So, keep all EPF slips. Says Amit Gopal, vice-president, India Life Capital Pvt. Ltd, an investment and legal consulting firm: “After a considerable waiting period, EPFO (Employees’ Provident Fund Organisation) will transfer funds to an unclaimed deposit account. Your funds will not earn interest during that period but once you make a claim, the interest due is paid even for the period your fund was sitting in the unclaimed deposit account. But, according to procedure, to withdraw your money is quite cumbersome. A better strategy is to remember to transfer your account at the time of changing jobs.”