Inactive EPF account: Asset or liability?

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Your Employees’ Provident Fund (EPF) account is giving you a return of 8.5% when other small savings schemes are around just 7%. With so much high return on your EPF balance, it should be a concern if your account has been inoperative. This is because once inoperative your account stop earning interest on the accumulated balance.

What is EPF? EPF is a retirement benefit plan where both employer and employee contribute a certain percentage of the salary. The employee contributes 12% of basic salary plus dearness allowance towards its EPF account. While the employer makes the matching contribution 8.33% of the employer’s contribution is shifted towards Employee Pension Scheme (EPS) subject to a ceiling of 1,250 per month if the salary of the employee is 15,000 or more. The remaining 3.67% goes towards the EPF account of the employee.

In addition, the employer also contributes 0.50% towards the Employees’ Deposit Linked Insurance (EDLI) account of the employee. Employee Deposit Linked Insurance Scheme (EDLI) is an insurance cover provided by the EPFO at no extra cost. The cost of this insurance is borne by your employer at 0.50% subject to a maximum of Rs 75. The minimum claim amount is fixed at Rs 2.5 lakh, while the maximum is capped at Rs 6 lakh.

What makes the EPF account inoperative?

According to Indian Provident Fund law, an EPF account can become an “inoperative account” under the following three circumstances. First when an employee retires from service after attaining the age of 55 years. Second, if the person shifts abroad permanently or dies. Third when there has been no fresh contribution within 36 months. Once the account becomes inoperative no interest amount gets credited to the account.

Transfer money from the inoperative account

So if your account is lying dormant don’t forget to transfer your funds to the existing PF account.  If you are not having any PF account consider withdrawing money to invest in other avenues such as FDs and short term debt funds, which can earn you a higher return.  You can do it online which is quite easy and hassle-free.