After dropping the plan to tax EPF (Employees Provident Fund), government has taken another step which adds up to already popular investment scheme. Back in 2011, EPFO (Employee Provident Fund Organisation) had taken decision to curb paying interest on inoperative PF accounts with the intent to dissuade people from making their accounts dormant and encourage them to merge it with their active PF account. Many people fail or forget to transfer their PF money in the new PF account after switching job which forced the government to take this step.
An inoperative EPF account is the account that has not received any contribution from either the employee or the employer for a period of 36 months. These accounts didn’t earn interest according to the earlier rules.
However, the reigning government has now decided to credit interest even on inoperative EPF accounts. The decision comes in the backdrop of a notification released recently by CBT (Central Board of Trustees) where it barred people from withdrawing full PPF amount before attaining the age of 58. Since now PPF cannot be withdrawn, the rule to curb interest payment on EPF accounts holds no sense any more.
Earlier an individual who was out of job for more than 2 months was allowed to withdraw his PF but now even he cannot withdraw the whole amount before reaching 58 years of age. The restriction is on the amount of employer’s contribution to the EPF account. So it appears unjust to not pay interest on the hard earned money of an individual. According to the new rules the interest payments will be received by account holders till the age of 61 years so they can keep the money in their EPF account for 3 more years to make some extra financial gains. In case of death of EPF member, the interest on their savings will be credited for a period of three years after his or her death. There will be no inoperative EPF accounts with the exception of accounts where employee settles abroad permanently and fails to withdraw their account balance within 36 months.
This news is elating for EPF account holders but may have an adverse effect on government’s plan to create Senior Citizens Welfare Fund, a new scheme for the welfare of senior citizens. However it will help 40 million EPF account holders in switching jobs without worrying about their investments.