Often this question arises in the minds of employed people that if they leave the job, take a break from their career or do not join a new company, then what will happen to the amount deposited in the old Employees Provident Fund (EPF) account. Many people think that the interest on PF stops immediately as soon as the contribution stops, whereas this is not at all the case. According to the current rules of the Employees Provident Fund Organization (EPFO), even after leaving the job, compound interest continues to be earned on your PF balance at an annual rate. However, this interest is not available for life; For this, EPFO has set clear limits based on age and account status. How long will interest continue to be received? Main rule of age of 58 years: Under EPFO rules, if an employee leaves the job before the age of 55 years (be it at the age of 30, 40 or 45), then the amount deposited in his PF account continues to earn interest till he completes the age of 58 years. Leaving the job before 55 years: If you leave the job prematurely and do not withdraw money from the PF, your account is considered active and keeps adding interest until you turn 58 years (superannuation age). Interest stops after 58 years: As soon as the member completes 58 years of age and there has been no new contribution in the account for the last 36 months (3 years), the account is declared 'inoperative' i.e. inoperative account. After it becomes inoperative, further interest on it stops completely. Retirement at or after 55 years: If an employee retires at or after 55 years and does not withdraw PF for the next 36 months, then after 36 months the account becomes inoperative and interest on it stops. What is Inoperative Account? An account is considered 'inoperative' under Para 72(6) of the EPF Scheme 1952 when: The member has retired from service after attaining the age of 55 years and no claim has been made for 36 months. The member is permanently settled abroad. The member has died and the dependents have not applied for withdrawal. The member must have completed 58 years of age and no new contribution has come. Status Interest period When will the account become inoperative? Left before 55 years of age (e.g. 35 or 42 years) Interest accrued till completion of 58 years Retirement at 55 years of age or later Retirement at 60 years after 36 months (3 years) from date of retirement Retirement at 60 years (in special cases) Upto 63 years of age (3 years grace) On completion of 63 years of age Biggest catch: Income tax on interest earned after leaving the job. Even though EPFO pays interest till the age of 58 years, the Income Tax rules are quite strict here: During active service: If an employee contributes to EPF for 5 years or more continuously, there is no tax on his contribution and the ordinary interest thereon (within the limit of employee contribution of up to ₹ 2.5 lakh annually). After leaving the job: Any new interest earned on the PF balance in the years following the day you officially leave the job is fully taxable. Liability as per tax slab: As per Income Tax Department rules, interest earned after termination of service is considered as 'Income from Other Sources' and at the time of withdrawal, tax is to be paid as per the applicable tax slab of the investor. What is the best thing to do when changing jobs? If you have left one company and joined another company, then instead of withdrawing the money from the old PF, it should be immediately transferred to the PF account of the new employer (through Universal Account Number – UAN). This keeps adding to your total service period (Continuous Service). If the service exceeds 5 years, then there is the benefit of tax exemption on complete withdrawal of money in future. At the same time, if you are leaving the job forever, then it is wise to withdraw your entire fund before the age of 58 years so that you do not have to suffer the loss of account becoming inoperative and interest stopping.
