EPF needs no introduction. It is one of the most popular saving instruments in the world’s largest democracy. EPFO currently serves around 8 crore subscribers. Most of the employers in the country like to use PF as a social security instrument for their employees.
Did you know that there is around Rs. 23,000 crore lying in inactive EPF accounts?
What is an inactive EPF account?
An inactive EPF account is one in which there are no further contributions made to it for 36 consecutive months.
Reasons for EPF account becoming inactive
1) Transfer of employment – An EPF account can become inactive when you shift your job. A lot of times we shift to a new employer and forget that we already had an EPF account with the old employer. This is the major reason due to which an account becomes dormant.
2) Company is not in operation – There could be cases where the company is closed due to various reasons. In such cases, you would be concerned about a new job and ignore your PF account.
3) Moving out of country – While moving to another nation for employment, we may forget that there is an EPF account which needs to be taken care of.
4) Taking up a business – Few of us might give up on employment and take up entrepreneurship. However, there might be an EPF account for which we would have been contributing a monthly sum for the past few years.
What happens if EPF account becomes inactive?
- Though your EPF account would receive interest for 36 consecutive months, after becoming inactive, there would not be any interest credited.
- Dormant EPF accounts are prone to frauds. There have been multiple cases reported of late on fraud EPF withdrawals. Most of the reported accounts were found to be in inactive mode of operation. Fraudsters linked these accounts to fake bank accounts. Later, these accounts would show negative balance.
What should you do?
1) Transfer your EPF account – This should be the first thing to do whenever there is a change of employer. It is a very simple process. The new employer would ask you few details of the old PF account and transfer it to them. If your account is already inactive, you can follow the same process and get the necessary form 13 filled to transfer the account to new employer. Transfers might take up to a month, but if you apply for transfer, the account would no longer be treated as dormant.
Transfer of EPF account is the best option to follow in event of change of employer since it gets your account back to active mode. Also, EPF is a long term retirement investment product, and transfer of account will help you get the magic of compounding.
2) Withdraw balance from the EPF account – The next best option for you is to withdraw the balance in the EPF account. According to EPF rules, you can withdraw balance from EPF account if you are not employed for up to 2 months from the date of leaving a job. Click here to download the EPF withdrawal form.
EPF is EEE (Exempt Exempt Exempt) financial instrument. It means you can claim a tax deduction up to Rs. 1 lakh under section 80c, interest is tax free, withdrawal is also tax free (if done after 5 years of service). It currently offers an interest rate of 8.5%.