The Ministry of Labour and Employment, Government of India, has recently made a few amendments in the Employees’ Provident Fund Scheme, 1952 (PF Scheme). These guidelines are mainly related to ‘early withdrawals‘ from Provident Fund & provisions related to PF withdrawals. These latest EPF withdrawal rules are effective from 10th February, 2016.
Amendments are related to;
- Full EPF balance cannot be withdrawn before attaining the Retirement Age.
- Continuity of EPF membership.
- Increase in Age limit to withdraw 90% of PF balance.
- Partial withdrawal of EPF amount on Resignation.
- Increase of retirement age.
Let’s discuss in detail about these new PF withdrawal rules.
Latest Update (20-Apr-2016) : “Govt rolls back new EPF withdrawal norms and old system will continue. The notification which was issued on 10th Feb, 2016 has been cancelled.” So, the existing rules will be continued..
Latest EPF Withdrawal Rules
- Full EPF balance cannot be withdrawn (limit on early PF withdrawals)
- Existing rule : The EPF members (employees) can withdraw the full EPF balance after 60 days of unemployment. (The EPF balance consists of employee’s contributions + employer’s contributions + interest amounts. Every month 12% of your “salary” is contributed towards EPF account.)
- New Rule : The EPF members 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 only. The employer’s portion can be withdrawn after attaining the retirement age (58 years).
- Continuity of your EPF membership
- Existing rule : If an employee withdraws full EPF amount after resigning from the job, his/her PF membership is deemed to be terminated. That means he/she is not a member of EPF scheme after the full withdrawal.
- New Rule : An employee can only withdraw his share on resigning from the job. You cannot withdraw full EPF amount before attaining the retirement age. So, you will still be the member of EPF even if you cease to be an employee of a EPF covered establishment. I believe that concept of ‘In-operative EPF a/c‘ may cease to exist.
- Retirement Age
- Existing rule : The retirement age is considered as 55 years.
- New Rule : The age of retirement has now been increased from 55 to 58 years.
- EPF Withdrawal provisions
- Existing rule : You (employee) can withdraw the full PF amount on retirement from service (55 years) or on cessation of employment and not being employed for at least 60 days.
- New rule : As discussed above, the retirement age has now been increased from 55 to 58 years and the option of full EPF withdrawal on resignation will not be allowed. You can withdraw your contributions + interest portion only.
- 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.
Budget 2016 & EPF Scheme New Rules
Budget 2016 is negative for the salaried class. As per the Budget 2016 proposal, at the time of retirement, 40% of the EPF lump sum withdrawal is tax-exempted, 60% of the corpus is subject to taxes as per the applicable Income Tax Slab. To avoid this, the EPF member has to invest this 60% balance in an Annuity life insurance product. However, this 40:60 tax rule is applicable only on the corpus created out of contributions made after 1st April, 2016. also, the EPF member who is investing in Annuity dies and when the original Corpus goes in the hands of his heirs, then there will be no tax.
The Budget 2016-17 proposal of levying income tax on 60% of EPF balance has been withdrawn by the government. So, no tax will be levied on PF withdrawals at the time of retirement. The other Budget proposal to make 40 per cent of the total withdrawal from the National Pension Scheme (NPS) will however remain unchanged. (Latest news : 08-March-2016)
Your EPF contributions / savings are meant for your retirement. Dipping into the corpus before you retire prevents your money to gain from the power of compounding.
These new rules may FORCE you to accumulate a portion of your PF fund till you attain the retirement age. Besides above new rules, kindly note that the withdrawals from the EPF within five years of joining are taxable.
TDS has been made applicable if one withdraws PF within 5 years. (Budget 2016 update : In case of payment of accumulated balance due to an employee in EPF, the TDS limit is being raised from Rs 30,000 to Rs 50,000. So, TDS is not applicable if the PF withdrawal amount is less than Rs 50,000. This new amendment is applicable with effective from 1st June, 2016.)
If you would like to retire early or would like to start a business after being employed for few years, you may surely not like these new EPF withdrawal rules.
Proposed EPF Withdrawal Rules with effective from 1st August, 2016
- The proposed new withdrawal rules will be implemented from 1st Aug 2016.
- The amended rules do not allow an employee to withdraw the entire amount from his or her PF account till the subscriber attains the age of 58, the age of retirement.
- According to the new rules, he/she can only withdraw the contribution to the PF and interest accrued on it. The employer’s contribution and interest can only be withdrawn after attaining the age of retirement.
- Based on the public feedback/backlash, it has been decided that ‘Full PF accumulations (Employees + Employer’s share + interest) will be paid to the EPF member on fulfilling any of the following conditions;
- Housing purpose of a member.
- Medical treatment – Self / family member suffering from TB, Leprosy, Paralysis, cancer or Heart operation.
- Marriage of children.
- Professional education of children (like Medical/Engineering/Dental).
- If EPF member joins an establishment belonging to or under the control of the Central or State Government and becomes a member of Contributory PF or any old age Pension scheme. (I believe this rule may again lead to lot of confusion and we may witness backlash from PVT sector employees.)
Latest Update (30-March-2016) : The Employees Provident Fund Organization (EPFO) has decided to provide Interest on Inoperative Accounts from 1st April, 2016. This move will benefit over nine crore such account-holders having total deposits of over Rs 32,000 crore. Inoperative accounts are those wherein the PF contributions have not been received for 36 months. EPFO had stopped payment of interest to such accounts from April 1, 2011.
Latest Update (27-June-2018) : EPF Subscribers who resign from their service can now withdraw 75% of their total Provident Fund (PF) kitty after one month from the date of cessation of service. This will be considered as a Partial PF withdrawal (Advance).
You may like reading another interesting article : How is Interest calculated on my EPF A/c?
(Reference : Govt notification, Asan Ideas for wealth – Facebook Group & pwc.in)