Among employees there are always some curiousity about EPFO. Through making some contributions in EPF, employees can create a fund which will help them after the job. But what will happen when someone stop contributing? Let’s find out.
Know experts opinion
Experts say that stopping EPF contributions impacts retirement fund growth. Individuals working in the private sector are covered by the EPFO. Contributions to an employee’s EPF account are made in two ways each month. First, a portion of the employee’s basic salary (plus DA) is deposited into their EPF account each month. The employer also makes an equal contribution (the same as the employee’s) to the employee’s EPF account each month.
When the account stop opperating
Contributions to an employee’s EPF account stop as soon as they leave their job. Sometimes, employees leave one job and join another. It’s possible that the new company isn’t covered by the EPF Act. In such a situation, contributions to their EPF account stop. According to EPFO rules, interest is earned on deposits only if the EPF account remains active (operative).
An EPF account becomes inoperative if contributions are not made for 36 months. Prior to that, interest continues to accrue on deposits. However, even after an EPF account becomes inoperative, the funds deposited remain safe with the EPFO. There are rules and conditions for withdrawing funds. However, there are significant disadvantages to having funds sitting in an inoperative account. You lose the opportunity to earn interest on the funds. Currently, the EPF interest rate is 8.25%.
If a person remains unemployed for more than two months, they can withdraw their EPF deposits. If your employment is less than five years old, you will be taxable on the EPF withdrawals. Tax will be applied based on your income tax slab. Experts advise that if you change jobs, you should transfer your account to your new employer as soon as possible.
An EPF account accumulates a substantial amount of money over a few years. The interest rate is also quite attractive. Therefore, leaving your EPF account inoperative for a long period can result in significant losses. This will directly impact your retirement fund. You can also transfer the funds deposited in your EPF account online.
