Are you a frequent job hopper? Keep these things in mind to minimise your tax liability

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Published: May 8, 2019 5:12:43 PM

After resignation, an employee gets Earned Leave Encashment and Gratuity as retirement benefits, while the PF amount accumulated in the Employees' Provident Fund (EPF) account may also be withdrawn.

income tax, how to minimise tax outgo, tax liability, pension, Employees’ Provident Fund, EPF, income tax, 80C benefit, Earned Leave Encashment, Gratuity, tax on PF withdrawalafter at least 10 continuous years, you would be eligible for getting some pension

If you are a job hopper and change your job in every 3-4 years or more frequently, you should keep certain things in mind to minimise your tax outgo. At the time of resignation, an employee gets Earned Leave Encashment and Gratuity. Apart from these, the PF amount accumulated in the Employees’ Provident Fund (EPF) account may also be withdrawn.

To get Gratuity, you have to stay in a job for at least five years, while Earned Leave Encashment is partially tax free up to a certain limit. However, you will have the full control on the amount accumulated in your EPF account and a casual approach may result into a considerable tax outgo, while an informed decision may either save you from paying any tax or minimise the liability.

If you change your job before five years after becoming a Provident Fund (PF) member, the first thing you should do is to transfer the balance of old the PF account to the new PF account maintained by the new employer. It will save you from paying any tax as EPF money gets tax-free after completion of five years.

“These five years need not necessarily be with the same employer. Even if it is with different employers – it would be considered,” says CA Karan Batra, Founder & CEO of

Transferring the EPF account from one employer to another would not only save you from paying tax, but after 10 continuous years, you would be eligible for getting some pension as well.

However, in case you withdraw the EPF amount before completion of five years, you will have to pay a considerable amount of tax as the 80C benefits you got on self-contribution for the past years will also be reversed.

Not only this, as described by Batra, it is important to note here that there are three components in the EPF balance – Employee Contribution, Employer Contribution and Interest. The taxability of all these, if withdrawn before five years, would be as follows:

  1. Employee Contribution – No Tax if deduction not claimed u/s 80C
  2. Employer Contribution – Taxable
  3. Interest – Taxable

As shown above, while employer’s contribution and interest is taxable, if EPF amount is withdrawn within five years, you may get partial relief if you don’t claim 80C deductions for your PF contribution.

“If the 80C limit has already been exhausted, then it would be assumed that deduction for EPF has not been claimed. Therefore, if the amount is withdrawn before five years – tax would not be levied,” says Batra.

So, if it is necessary for you to withdraw the PF money before five years, don’t take the self contribution to EPF into consideration and make tax-saving investments of Rs 1,50,000 to exhaust the limit.

Also, submit your investment declaration to your employer, so that it is revealed that you are not taking any 80C benefits on self-contribution to your EPF account. Otherwise, at the time of withdrawal before five years, your employer or the EPFO on the basis of information provided by your employer, may cut tax on self-contribution, assuming that you have taken the benefit. In that case, you have to claim back the additional tax deducted through the ITR.

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