Idle EPF A/cs to earn interest till you retire

Idle EPF A/cs to earn interest till you retire

In a significant development, the ministry of labour has relaxed the definition of `inoperative' employee provident fund (EPF) accounts, which do not earn any interest. Now, if an EPF account is lying idle for 36 months or more, it will not automatically be treated as inoperative, but will continue to accrue interest.

The details are spelt out in a notification issued on November 11. This notification provides that an EPF account will be treated as operative on termination of employment and the EPF account holder will continue to earn interest, unless the employee concerned applies for withdrawal of the accumulated balance in his EPF account or takes up another job within two months, with another employer who is covered by the EPF scheme.  On taking up a new employment, the EPF account can be transferred under the new employment. The interest payable is notified each year and for 2015-16 it was 8.8%. Prior to the issue of this notification, an EPF account was considered as inoperative if it was dormant (idle) for 36 months or more. Since April 1, 2011, inoperative accounts did not attract any interest. Thus, if an employee resigned and did not take up another job, or failed to transfer his account to the new employment, the funds in an idle EPF account did not earn him any interest. The notification has amended this scenario.

The provisions of the EPF scheme are now amended to provide that an EPF account will be considered as inoperative only where the employee retires from service after attaining the age of 55 years or migrates abroad permanently and in both cases does not make an application for withdrawal of the accumulated balance in his EPF account within 36 months. An account will also become inoperative on death of the account holder. The dilution in the definition of inoperative accounts means that from November 11onwards, a greater number of account holders will get interest against funds lying idle in their EPF accounts.

“The amendments will benefit employees who leave mainstream employment and take up self-employment to fulfil their entrepreneurial goals or take up employment with small employers not covered under EPF scheme. Such employees can now leave their EPF fund balance with the authorities and continue to receive interest. This change will create a new investment option for such employees,“ says Sonu Iyer, leader, People Advisory Services at EY India. “Even those who turn homemakers will stand to benefit as their EPF fund balance will continue to earn interest,“ she adds. Only when such accounts become inoperative under the new definition will interest no longer accrue.

In February this year, when the ministry of labour had issued a controversial notification restricting withdrawal from EPF prior to retirement (a move which had to be rolled back), it had hinted that interest would be paid on dormant accounts. An official notification has now been issued.

Source | Times of India | 16 November 2016

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Pralhad Jadhav

Senior Manager @ Library

Khaitan & Co

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