I worked for my previous employer for 3.5 years and left the job to pursue higher education. I am currently studying and I want to know what all possible options are available for my Employees’ Provident Fund (EPF) contributions. Should I withdraw it or should I leave it as it is? Also, if I don’t withdraw, do I need to contact my employer or is there any need to do any formalities like contacting the EPF authorities?
Your PF account, due to non-operation, has become an inoperative account. The accounts where there is no contribution for a continuous period of 36 months are called as inoperative or dormant PF accounts.
First, you should know whether the account is earning any interest or not. Next you should find out which asset class suits your profile, subject to your need of funds. This will also ensure in taking a rationale decision.
All PF accounts were earning interest, whether active or dormant, before some restrictions were imposed on the dormant accounts from April 2011.
After that the interest accumulation was stopped in these dormant accounts. This was done primarily to help EPFO to save some interest pay-out as well as to help it in switching to a computerized accounting system where the basic requirement was to have a clean financial data—which the dormant accounts lacked.
However, this restriction was lifted from April 2016 and the dormant accounts were again allowed to earn interest till the account holder attains the age of 58 years—the age of retirement.
In your case, the account has become dormant but is earning you interest. However, the interest accrued is taxable as you have not completed 5 years of continuous service. The resulting post-tax return in the account does not remain attractive.
You need to decide—subject to your need of funds—whether you should withdraw the money or not. If you can invest the corpus for long term, then you should withdraw it and reinvest in equity asset class where equity mutual funds are recommended. If not, then the withdrawal should be considered any time during the financial year in which you are not taxable—this means: the year in which you are not in employment, and when income tax on the withdrawal will be reduced.
For withdrawing PF, you can contact your employer. You also need to ensure that a UAN (Unique Account Number) has been allotted to you for ease of dealing with the PF authority.
How can I open a Hindu Undivided Family (HUF) entity? I am an individual and my father wants to give some amount every month to my children and others in the family. I plan to invest this money in mutual funds. Please suggest how can one start an HUF.
An HUF can be started by creating an HUF deed. The deed should cover the members of the HUF—called coparceners—and the head of the HUF called Karta; along with mentioning the business of that HUF. Once the deed is created, you need to apply for an HUF PAN (Permanent Account Number). And based on the HUF PAN, you can apply for opening an HUF bank account. An HUF can only be created with assets that are either inherited by Will, by gift received for the welfare of HUF members or sale of any ancestral asset.
HUF being a separate legal entity enjoys all the rights of tax saving and marginal rates of tax. HUF can claim deduction under section 80C of the income-tax act and can also give salaries to members subject to their contribution to the HUF, which can also be an expense for the HUF. There are a few disadvantages to HUFs, such as, equal rights to all members for real estate assets.
So, for example, a property cannot be sold without the approval of all members of an HUF. And a member is created by way of birth, marriage. And there have been instances when the HUF has become too large to manage.
In your case, an HUF can be created and monthly investments can be started in mutual funds. Subject to your investment horizon, the investments can be planned.
Surya Bhatia is managing partner of Asset Managers
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