Employees’ Provident Fund (EPF) plays a big role in retirement planning. Contribution every month creates a huge fund in the long run, which proves to be very helpful after retirement. The question is what will happen if contribution in EPF account is stopped?
Contribution is made every month in EPF account
Experts say that EPF Stopping contributions affects the growth of the retirement fund. People working in private sector come under the purview of EPFO. There are two types of contributions made to the employee’s EPF account every month. First, every month a part of the employee’s basic salary (plus DA) is deposited in his EPF account. The employer also makes equal contribution (as much as the employee) to the employee’s EPF account every month.
Contribution to account stops after leaving job
As soon as the employee leaves the job, contribution to his EPF account stops. Many times an employee leaves one job and joins another. It is possible that the new company does not come under the purview of the EPF Act. In such a situation, contribution to his EPF account stops. According to EPFO rules, interest is available on the money deposited in the EPF account only when it remains active.
If there is no contribution for three years then the account becomes inoperative
If contribution is not made in the EPF account for 36 months then it becomes ‘inoperative’. Before that, interest continues to be earned on the money deposited in the account. However, even after the EPF account becomes inoperative, the money deposited in it remains safe with EPFO. There are terms and conditions for withdrawing it. But, there are many disadvantages of keeping money lying in an inoperative account. You lose the opportunity to earn interest on it. Currently the interest rate of EPF is 8.25 percent.
Tax on withdrawal if job is not 5 years old
If a person remains unemployed for more than two months, he can withdraw his money deposited in EPF. If your job is not 5 years old then you will have to pay tax on the money withdrawn from EPF. You will have to pay tax on this as per your income tax slab. Experts say that if you change jobs, you should get your account transferred to the new employer soon.
Transfer the money deposited in EPF as soon as you change job.
A good amount of money gets deposited in the EPF account after a few years. The interest rate available on this is also quite attractive. Therefore, if your EPF account is inoperative for a long time, you may have to suffer a huge loss. This will have a direct impact on your retirement fund. You can also transfer the money deposited in your EPF account online.