Changed your company recently and now not able to decide whether to go for EPF withdrawal or EPF Transfer?
I think there is no single straightway answer for this question. EPF withdrawal VS transfer is a debatable topic. But, in this article I would like to share my view and experience regarding this topic.
EPF withdrawal or EPF Transfer?
Gone are the days when people have to find it very difficult to deal with EPF account whther to transfer or withdraw. Now a day’s system has been improved a lot and one can easily transfer EPF account from old company to new company.
Not only is that, if you want to withdraw EPF balanace, then also in most of the cases procedure quite speedy only. In case your previous employer doesn’t co-operate with your EPF balance withdrawal application, then you may find some difficulty.
Now to resolve this dilemma, I will share both positives and negative of EPF transfer and EPF withdrawal.
Why one should not withdraw EPF money while changing companies
- Let’s say you have worked in a company for 4 years and after that you have moved to a new company. In this case, if you withdraw EPF money you will be liable to pay tax on accumulated interest amount as per your income tax slab. So, better to wait for 5 year, if you want to withdraw EPF money.
- Investing via EPF is a great way to make wealth in longer term. The compounding interest rate of 8.5% can make a huge amount by the time you retire. So, you can continue the EPF account, if there is no urgency for liquidity in your personal life.
- In long term, one can apply for PF loans for house building/ marriage/ education/ medical etc. For that you have to continue the EPF account without withdrawing any balance till certain period.
- Off-course by continuing the EPF will increase your tax free interest amount and you will be able to save a lump-sum for your retired life. This is like a silent and the most effective retirement plan for any working individual. If you are a long term investment friendly investor then you might know the importance of EPF in our financial life.
- With the introduction of UAN (universal account number), the procedure of transferring EPF account from previous company to new company has become very easy. So, one shouldn’t worry about the process delay that we might have faced previously.
When should I withdraw EPF money?
I am not talking about any EPF withdrawal rules, but want to share that one can use the EPF money to fund some personal financial emergency.
- If you have any loan E.g. Home Loan, Personal Loan, car Loan etc and it is the initial year only, then you can withdraw your EPF money to do a part payment. These loans have high interest rate in initial years, so one should try to repay as much as possible to reduce the interest burden. So I don’t think there is any point of getting compounding interest of 8.5%, when I am giving more than 80% amount as interest on an EMI.
- If you don’t have a plan to retire at the age of 60, then you could utilize this amount for better investment options. These days’ people are talking about early retirement and this is only possible if someone plan for a solid wealth building route. And that is only possible via enough investment in equity route. If you need a EPF account also, you can open a PPF account and get the similar benefit with better control at least.
Conclusion of EPF withdrawal or EPF Transfer
When I have left my first organization, I was in similar dilemma which one is better: EPF withdrawal or EPF Transfer? But at that time I had some financial liability and I found there is no other option to withdraw the amount.
In the 2nd time also, I have decided to withdraw the money and repay my home loan principle. I was surprised to see that a repayment of just Rs 70,000 reduces my 17 EMIs of each 20,000. Means I was able to reduce 3,40,000 loan burden by paying only Rs 70,000 part-payment.
So what is your reason to withdraw EFP money? Which one do you prefer between EPF withdrawal or EPF Transfer and why? Share your feedback and suggestions here by providing a simple comment.