Do you know Government may forfeit your old inactive EPF account? Many of us just keep the account idle without withdrawing it. However, do remember that inactive EPF accounts may be forfeited if you don’t know the exact rules.
As many of us know, EPF currently providing the tax-free 8.5% rate of interest. This is one of the best debt products which is offering such high returns with utmost safety. Hence, many salaried usually not withdraw and keep it as it is. However, there are certain rules to it. Don’t blindly believe that you can keep your EPF account as long as possible.
What is the meaning of Inactive EPF Account?
Before jumping into the recent changes, let us first understand what is the meaning of inactive EPF accounts. Many confused here to understand the difference between non-contributory accounts and inactive accounts. Here, two points to understand and they are as below.
# Earlier, when EPFO announced that for any non-contributory EPF accounts, they will not credit the interest, EPFO defined inactive account as “any EPFO Account which fails to make contributions for 36 continuous months (3 Yrs) is called INOPERATIVE Account. In addition to this, if you applied for a withdrawal but due to wrong address, bank details, or some other reasons you fail to claim the amount and laying with EPFO for 36 months (3 Yrs) from the date of it become payable are also classified as INOPERATIVE Accounts.”
I have written a detailed post on how you can check your account status online. Refer to the post “What is an Inoperative EPF Account and how to track it online?“.
However, later on, EPFO clarified that interest will be payable on such a non-contributory period for up to the age of 58 years of the member, this 3 years definition turned useless. As per the current rules, EPFO will credit the interest on such non-contributory accounts up to the age of 58 years. After 58 years, the account will be treated as INACTIVE (but not immediately after 3 years non-contributory period).
The retirement age for EPF is 55 years. Hence, EPFO will pay you the interest up to the age of 58 years (Retirement age+3 Yrs).
I have written a post on this by sharing the EPFO notification. You can refer the same at “Interest on Inoperative EPF Accounts up to 58 Yrs of age“.
Sharing the notification image for your benefit also.
# However, interest earned on such inactive accounts is taxable income for you. Yes, earlier many thought that interest earned on all EPF accounts are tax-free. However, the ITAT (Income-Tax Appellate Tribunal) in one of its orders has clarified that the EPF interest income is taxable, if PF member is not employed. ‘Any interest income accrued on EPF post-retirement / resignation is taxable in your hands.’
If you resign, retire or get terminated from your job, but do not withdraw your EPF immediately then interest income earned on your EPF balance is taxable during this non-contributory period. The interest income earned during your employment remains tax-exempted though.
Let me share all these important points through this below image.
Inactive EPF Account and Senior Citizen Welfare Fund
The above mentioned rules are from EPFO and Income Tax Department and I hope that you get the clarity on this aspect. Now, in the year 2016, Government introduced Senior Citizen Welfare Fund (SCWF).
Unclaimed money from EPF accounts, as well as from small saving schemes, insurance companies, etc. was supposed to be transferred. As per the SCWF regulations, after an account has been classified as inoperative for ten years, the amount remaining in it is to be transferred to SCWF.
Let me explain the same through the below image.
You noticed that once your account turns inoperative, for the next 10 years, you can still earn the interest (subject to 58 years of age limit as explained above). If you do not withdraw the EPF account, then it will be moved to the SCWF account, where it will earn the interest rate of SCWF (declared by Govt on annual basis). The recently declared interest rate on Senior Citizen Welfare Fund interest rate for FY 2020-21 is 5.81%.
For the next 25 years, it will be in that SCWF and during this period, you or your nominee can claim the amount through EPFO. However, once it completes 25 years, then the Government will forfeit your EPF balance and none can claim this at later stage, unless otherwise directed by a court order.
Old Inactive EPF Account – Should you withdraw or continue?
Based on the changes of EPFO, ITAT and SCWF, we can conclude as below for the simplicity.
# Your account will turn inactive only when you reach the age of 58 years and not withdraw the EPF balance (Earlier it was 3 years from the non-contributory period).
# From the date of non-contributory EPF to the time of withdrawal, you are eligible to earn the interest. However, such interest is taxable.
# If you keep your non-contributory EPF accounts for more than 10 years, then EPFO will move your account to SCWF.
# Your EPF account will remain with SCWF for the next 25 years and earn the interest rate declared by Government on such SCWF.
# You or your nominee can claim the EPF amount from SCWF through EPFO during this period of 25 years.
# After the completion of 25 years with SCWF, if you still not withdraw your EPF account, then Government will forfeit the money. To get back the money, you have to knock the court.
Do remember that such movement to SCWF will not happen automatically. Instead, EPFO will inform you through the contact details you linked to EPF accounts. If you still not respond and not withdraw, then they move to SCWF.
Hence, considering all these rules, it is always best to transfer your old EPF accounts to the existing active EPF account immediately. Otherwise, withdraw the EPF balance immediately after 2 months from the non-contributory period or unemployment.
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