If you’re a corporate employee that’s been counting on withdrawing your Employee Provident Fund account prematurely, you might need to think again. The Ministry of Labour and Employment, Government of India, has recently made amendments in the Employees’ Provident Fund Scheme, 1952, that make it harder for employees to prematurely withdraw from their EPF accounts.
Employees in India typically contribute 12% of their monthly salary towards a Provident Fund account. This is matched by an equal employer contribution to the scheme. This amount accumulates and earns interest over the working lifetime of an employee, and can be withdrawn upon retirement.
Under existing rules, employees could prematurely withdraw money from their EPF accounts under special circumstances, such as unemployment extending beyond 60 days. However, a new set of rules, that have come into effect since 10th February 2016, make it harder to employees to withdraw their EPF accounts before their retirement.
Here are the new rules:
1. Full EPF balance cannot be withdrawn (limit on early PF withdrawals)
Existing rule : Employees can withdraw the full EPF balance after 60 days of unemployment.
New rule: Employees cannot withdraw full PF amount before attaining the age of retirement. The maximum withdrawal on cessation of employment cannot exceed an amount aggregating employee’s own contribution and interest accrued thereon. You can withdraw your contributions + interest portion, but the employer’s portion can only be withdrawn after attaining the retirement age.
2. Retirement Age
Existing rule : The retirement age is 55.
New Rule : The age of retirement has now been increased from 55 to 58 years. This means you can only withdraw your EPF account when you turn 58, not 55.
3. 90% of EPF balance
Existing rule : You can withdraw up to 90% of your entire PF balance (employee share + employer share) on attaining 54 years of age or within one year before actual retirement, whichever is later.
New rule: You would now be able to avail this option only on attaining the age of 57 years. The age has now been increased from the current 54 years to 57 years.
These rules are meant to encourage employees to save money for longer periods of time. The EPF account, through systematic crediting and the power of compounding, ends up giving retiring employees a handsome lump sum to spend in their last years. By making it harder to prematurely withdraw from their accounts, these new regulations are expected to ensure that Indian employees are flush with cash at the fag end of their careers.