EPF is one of the strongest pillars of our long-term savings, but have you ever wondered what would happen if deposits into your EPF account stopped? According to experts, stopping EPF contributions directly impacts the growth rate of your retirement fund, potentially causing you to lose lakhs. It’s crucial to know what to do after leaving your job so that your hard-earned money remains safe and continues to earn interest.
Why EPF Contributions Stop Upon Job Change
The EPFO (Employees’ Provident Fund Organization) is an exceptional safety net for individuals working in the private sector. Contributions are deposited into an employee’s EPF account every month in two ways: one portion is deducted from the employee’s basic salary and dearness allowance (DA), and the other portion is an equal contribution from the employer.
Reasons for Stopping Contributions
When an employee leaves their job, contributions to the EPF account stop. Sometimes, an employee leaves one job and moves to another, and the new company may not be covered under the EPF Act. In such a situation, deposits into your EPF account stop.
What happens if contributions don’t go unpaid for 36 months
If you leave your EPF account inactive for a long time, you could suffer significant losses. According to EPFO rules, interest is earned on EPF deposits only if the account remains active (operational). If no contributions are deposited into the account for 36 months (three years), the account becomes inoperative. Interest continues to accrue on deposits until then.
The Biggest Disadvantage of an Inactive Account
Even after the account is inactive, the deposited funds remain completely safe with the EPFO. But the most significant disadvantage is that you lose the golden opportunity to earn interest on it. The current EPF interest rate is 8.25%. Experts estimate that leaving a ₹10 lakh deposit idle for three years could result in a loss of up to ₹7 lakh in interest. This will have a direct and negative impact on your retirement fund.
Do these things immediately after leaving your job, or you’ll be taxed
EPF is a tax-free investment, but withdrawals at the wrong time or leaving it idle can result in tax.
Withdrawal and Tax Rules
If a person remains unemployed for more than two months, they can withdraw their EPF deposits. However, if your tenure is less than five years, you will be taxed on EPF withdrawals. This tax will apply according to your income tax slab.
The Most Important Steps When Changing Jobs
Experts strongly recommend transferring your EPF account to the new company as soon as you change jobs. EPF accounts accumulate a substantial corpus over the years, and the interest rate on them is quite attractive. Therefore, leaving your EPF funds idle for long periods of time can be a huge financial mistake. You can also easily transfer your EPF deposits online.