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POSTED BY ON November 24, 2010 1:21 pm COMMENTS (2)
I have resigned from a company after working for 3.6 yrs. and I was thinking of withdrawing my superannuation accumulated amount so I can invest it somewhere else and pay few debts. Will this be a good idea?
– will I be paying tax on the total SA amount while withdrawing?
– will this add up to my total yearly income and increase my tax slab?
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Manish,
Primarily the decision to continue or not hinges on two factors from financial planning point of view.
One is what is the next thing I’m going to do with my career. Is the next job/opportunity going to increase my income substantially or manifold from the present situation?(not the usual 30-50% jump in salary type scenario) If it is, then, my new savings would be substantially large compared to the fund lying in the EPF account. So in the long term even if the effect of compounding kicks in and this fund would become large, still it would be much less than the forthcoming new investments one would be making and the future value of new investments. These together are supposed to support my long term goal of retirement planning but the role of old money corpus would be creating insignificant contribution compared to new money generated corpus at a future date.
Second point to be considered is- if there are some debts to be paid off plus an emergency fund required in hand-in case the future cash flow looks to be uncertain- there is no harm in withdrawing the fund even in the face of tax liability.
I don’t think there would be any TDS cut from it. They would be handing over the entire amount and let you do handle the tax issue-an opportunity to be dishonest- so to speak (and if one can get away with it)- though not advisable!
If the fund is with EPFO, then I think they are not going to pay interest on it henceforth if the account is not active i.e. continued with next emlpoyer- at present transerring the account even if theoretically possible – in practice quite impossible from experiences of many clients.
If above mentioned points don’t apply in your case or if the fund is with LIC and if they are ready to continue without new contributions and allow you to close it after completion of 5 years or again take a call according to personal situation prevailing at that point of time- where the tax liability would be nil- you should go for solution suggested by Chakri.
shashank
Manish,
You can transfer your superannuation accumulated amount to your new company if it supports.
if your new company doesn’t support this feature / option then you can keep it till you attain your retirment age with the company which is offering the superannuation like LIC.
if you don’t want to keep in it and if you want to withdraw then it is fully taxable subject to your tax slab.
Thanks,
Chakri