Most salaried employees have an?employee's provident fund (EPF) account to which they must contribute 12% of their basic salary?every month. Further, EPF also?enjoys the EEE category, wherein the amount invested, the interest earned (up to a certain extent), and the maturity amount (subject to certain conditions) are also tax-free.
However, given that EPF forms a major part of your post-retirement corpus, many employees are not aware of the finer details of the scheme.
Questions such as?for how long can you keep the money in an?EPF?account after retirement or after quitting your job, which means there will be no monthly contribution to the account, Or will the EPF account balance continue to earn interest if there are no monthly contributions, and if yes, then how long will it work and what would be the applicable?interest rate?on such an EPF balance?
Another question that pops up is: if you continue to work after retirement, either with the same or a different company, can you continue with the EPF and EPS account contributions?
If you are curious to know, here is a look at certain important rules surrounding the EPF account that you, as an investor, should know:
However, if you have quit working or retired, how long can you keep the money untouched in the EPF account??One should note that the EPF scheme allows an individual to withdraw 100% of their EPF balance and close the account if they do not join another job within two months. Or else, the EPF account can be closed at the time of retirement.
According to a press release issued by the?Ministry of Labour & Employment?on July 24, 2017, "The Government via a notification dated November 11, 2016, has amended the EPF Scheme regarding the conditions leading to an?EPF account?becoming an inoperative account.
As per the amended definition of 'Inoperative Account' (w.e.f. November 11, 2016), an account becomes inoperative after the age of 58 years, i.e., 36 months after the retirement age of 55 years."
"The money in the EPF account can be left untouched for three years from the date of retirement before the account becomes inoperative. However, if you are retiring at the age of 58, then the EPF account will become inoperative once there are no monthly contributions to the account. Similarly, if an individual retires at the age of 56 or 57, then the EPF account will remain operative till he is 58 years of age",? said Vaibhav Bhardwaj, Partner, INDUSLAW, a law firm, as per the ET report.
It may happen that an individual quits working before reaching retirement age. In such a case, how long will the EPF account remain operational? Bhardwaj says, "If an individual has stopped working before the retirement, the EPF account will remain operative for three years from the month in which EPF account contributions have stopped.?Post that, the EPF account will become inoperative irrespective of the retirement age."
Here is an example to understand this: Suppose an individual has stopped working at the age of 40. His last contribution to the EPF account was in July 2023. The EPF account will remain active until July 2026. After that, the account will become inoperative.
Saraswathi Kasturirangan, Partner at Deloitte, says that the provisions of the EPF Scheme indicate that the account will be inoperative where the member has retired from service after attaining 55 years of age or migrated abroad permanently and no application for withdrawal has been received within 36 months from the date it becomes payable. The account will continue to be active during the 36-month period.
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If the money in the EPF account is not withdrawn within 3 years from the date of cessation of employment, the account would be converted into an inoperative account.?The amounts lying in inoperative accounts under certain?provident fund schemes, including under the EPF Act, that have remained unclaimed for a period of 7 years will be transferred to the Senior Citizens' Welfare Fund.?
After being transferred to this fund, if the amount remains unclaimed for 25 years since the date of transfer, the central government will escheat the amount, Bhardwaj says.
Till the age of 55, as the money can be kept in the EPF account for a maximum of three years after the contribution stops, will it earn any interest? According to experts, the money kept in the EPF account will continue to earn interest. The interest rate will be the same as that notified by the finance ministry.
Kasturirangan from Deloitte says, "The balance in the EPF account would earn interest till the time the account remains operative. If money continues to remain in the EPF account after it becomes inoperative, then no interest will be paid on the accumulated balance.
Do note that, as per paragraph 60(6) of the EPF Scheme, 1952,?interest will not be credited to the account from the date on which it has become an inoperative account under paragraph 72(6) of the EPF Scheme, 1952.??
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While the interest earned from the EPF account is tax exempt (except in certain circumstances), it is tax exempt only if there are active contributions to the EPF account.
Kasturirangan says, "Though the EPF account will continue to earn interest until the time it remains operative, the interest earned will be taxable. This interest earned will be taxable in the hands of an EPF member because there are no active monthly contributions to the EPF account. The interest earned from an EPF account will be taxed at the income tax rate applicable to the member's income tax slabs.
The?interest remains taxable, even if the member has made contributions continuously for at least five years. So, any interest earned in the EPF account post cessation of employment is taxable irrespective of the fact that the member has already rendered five years of continuous service with contributions to PF."
Can you continue with the EPF contributions if, after retirement, you join the same or another organisation? As per the ET report, Akhil Chandna, Partner, Grant Thornton Bharat, says, "An employee who has attained the age of 58 cannot become a member of EPS. If the person continues to work after this age, the contribution to EPS will discontinue, but the contribution to EPF will continue. Both the employer's and employee's contributions will be deposited to the EPF account."??
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