Employee Provident Fund or EPF acts as a saving tool for employees. In EPF accounts, the employees contribute 12 percent of their salaries, and an equal amount is contributed by the employers. While switching jobs, employees are advised to merge the previous EPF account to the new one through Universal Account Number (UAN).
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But what happens if somebody forgets to do that? Does the account cease to operate as there any no contributions being made?
As per rule, such an EPF account continues to remain operative even in the absence of contributions to the account.
" It also continues to earn interest," says Archit Gupta, Founder, and CEO, ClearTax.
"The account becomes inoperative only after a failure to withdraw upon attaining 55 years of age. The EPF member gets a time of 36 months or three years to withdraw from the EPF account. After the expiry of 36 months from the date of attaining 55 years, the EPF account becomes inoperative," he explains.
Once an account is flagged as inoperative, it ceases to earn further interest.
After remaining inoperative for seven years, the EPFO transfers the unclaimed amount to the Senior Citizens’ Welfare Fund (SCWF).
"This amount stays in the SCWF for 25 years. If the account holder does not claim the amount at the end of 32 years (7 years inoperative + 25 years in SCWF), the amount is transferred to the central government unless there is a court order that directs otherwise," says Harsh Jain Co-founder and COO, Groww.
EPF withdrawal rule may also change if withdrawals are done during the non-employment period.
In general, the withdrawal from an EPF account is tax-exempt after rendering five years of continuous service. However, the tax authorities could seek to tax the interest earned during the non-employment period at the time of withdrawal from the EPF account.
Nevertheless, experts say withdrawing EPF should be the absolute last resort.
"In case somebody quits job to start own business, they can transfer the entire EPF balance to the National Pension Scheme," suggests Bala Parthasarathy, CEO & Co-founder, MoneyTap.
(Disclaimer:
CNBCTV18.com advises users to check with certified experts before taking any investment decisions.)
First Published: Jun 25, 2020 11:16 PM IST
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