Now onwards, even idle EPF accounts will earn interest
The ministry of labourin a significant development has relaxed the definition of `inoperative’ employee provident fund (EPF) accounts, which do not earn any interest. Now onwards, 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.
This notification was issued on 11th November, 2016. It informs 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 this notice, 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 scenario has amended by this notification.
Amendment of the provisions of the EPF scheme is 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.
SonuIyer, leader, People Advisory Services at EY India said, “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”. She further added, “Even those who turn homemakers will stand to benefit as their EPF fund balance will continue to earn interest.”