I have come across many individuals who have changed jobs or quit their jobs and have their EPF account lying dormant. Some are lazy and some just do not know what to do. And others believe that they are earning interest on the balance lying in their EPF account.
EPF currently provides the tax-free 8.5% rate of interest. This is one of the best debt products which is offering such high returns with utmost safety. Hence, many salaried usually not withdraw their EPF and keep it as it is. However, there are certain rules to it. Don’t blindly believe that you can keep your EPF account as long as possible.
Existing Rules of EPF
Any EPFO Account which fails to make contributions for 36 continuous months (3 Yrs) is called an INOPERATIVE Account. In addition to this, if you applied for a withdrawal but due to wrong address, bank details, or some other reasons you fail to claim the amount and laying with EPFO for 36 months (3 Yrs) from the date of it become payable are also classified as INOPERATIVE Accounts.
However, later on, EPFO clarified that interest will be payable on such a non-contributory period for up to the age of 58 years of the member, this 3 years definition turned useless. As per the current rules, EPFO will credit the interest on such non-contributory accounts up to the age of 58 years. After 58 years, the account will be treated as INACTIVE (but not immediately after 3 years non-contributory period).
The retirement age for EPF is 55 years. Hence, EPFO will pay you the interest up to the age of 58 years (Retirement age+3 Yrs).
However, interest earned on such inactive accounts is taxable income for you. If you resign, retire, or get terminated from your job, but do not withdraw your EPF immediately then interest income earned on your EPF balance is taxable during this non-contributory period. The interest income earned during your employment remains tax-exempted though.
How much interest will you earn in an inoperative EPF account?
Unclaimed money from EPF accounts, as well as from small saving schemes, insurance companies, etc. was supposed to be transferred. As per the Senior Citizens Welfare Fund (SCWF) regulations, after an account has been classified as inoperative for ten years, the amount remaining in it is to be transferred to SCWF. If you do not withdraw the EPF account, then it will be moved to the SCWF account, where it will earn the interest rate of SCWF (declared by Govt on annual basis). The recently declared interest rate on Senior Citizen Welfare Fund interest rate for FY 2020-21 is 5.81%.
So if you keep your money in EPF accounts untouched after 10 years, it will only earn 5.81% (as of today). This interest is determined every year by the GOI.
Financial Conclusion: what you should do?
Your account will turn inactive only when you reach the age of 58 years and not withdraw the EPF balance (Earlier it was 3 years from the non-contributory period).
From the date of non-contributory EPF (i.e. the day you stop working and contributing to your EPF account) to the time of withdrawal, you are eligible to earn the interest. However, such interest is taxable.
If you keep your non-contributory EPF accounts for more than 10 years, then EPFO will move your account to SCWF.
Your EPF account will remain with SCWF for the next 25 years and earn the interest rate declared by Government on such SCWF
After the completion of 25 years with SCWF, if you still not withdraw your EPF account, then Government will forfeit the money. To get back the money, you have to knock the court.
Do remember that such a movement to SCWF will not happen automatically. Instead, EPFO will inform you through the contact details you linked to EPF accounts. If you still not respond and not withdraw, then they move to SCWF.
Hence, considering all these rules, it is always best to transfer your old EPF accounts to the existing active EPF account immediately. Otherwise, withdraw the EPF balance immediately after 2 months from the non-contributory period or unemployment.
Disclaimer: - The emails are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.