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Many of the employees change their jobs and withdraw or transfer an employee provident fund during a job change. So essentially, when you change your job, legally it is mandatory to transfer Employee Provident Fund (EPF) Account at the time of job change. But, people generally don’t do it; instead of transferring, they withdraw the amount.

Ideally, you should initiate the process of transferring your EPF balance as soon as you join your new organization and are allotted a new PF account number, which is an alphanumeric number. If you have completed 5 years of continuous service in a company then you are eligible to withdraw their EPF amount tax-free. However if you have completed less than 5 years of continuous service, the share is then taxable. The pros of transferring the provident fund to a new company are that you can continue to expect tax-free guaranteed returns from the employee provident fund account. Also the interest rate that is offered is presently 8.5% per annum and this interest that keeps on compounding helps to save money.

The cons which follow from a complete withdrawal from the employee provident fund account is that if it is withdrawn within 5 years, then there will be no tax exemption and you will be liable to pay tax over it. So one of the disadvantages of withdrawing from your previous provident fund account is that the amount becomes taxable if it’s done within 5 years. 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. But according to the new rules, after year 2011, after 3 years of inactivity, your EPF account will stop earning any interest income, so this is another disadvantage of not transferring your EPF account.

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