How long will an EPF account earn interest without contributions?

Published: December 3, 2020 at 7:58 am

Recently, we received a query from a reader regarding some ambiguity in EPF interest rules. The reader was uncertain of how long an EPF account will earn interest if there is no contribution for 3 years or more than 3 years citing EPFO rules.

About the author: Anjesh Bharatiya is a 30+ taxman by profession and a Chemical Engineer by education. He has been an investor in the stock market since age 15! He likes to write about personal finance, stock markets, government policies, taxation, philosophy and football. Also, by Anjesh: (1) Want to trade in stocks? Here is how your income will be taxed(2) How to use Tax benefits on HRA and home loans (3) How to get tax benefits under a Hindu Undivided Family (HUF)(4) Payment of difference bet compound interest & simple interest in loan accounts: Will you benefit? (5) Guide to e-file ITR4 Income Tax Return For AY 2020-21

EPFO FAQ 44 which says that “How long an employee continues his EPF membership? – There is no restriction of the period of membership. Even after leaving the establishment, a person can continue his membership. However, if no contribution is received into a PF account for 3 consecutive years, the account shall not earn any interest after 3 years from the stopping of contribution.”

EPFO FAQ 55 which says that “How long a member can retain his provident fund in his account? – The membership can be retained till the withdrawal of his provident fund dues. However, if the account does not receive any contributions for more than 3 years, interest won’t be credited to the account after the 3rd year.”

FAQ 141 states “What is an inoperative account? – An account is classified as an inoperative account in which contribution has not been received for 3 years after retirement or permanent migration abroad or in case of death. At present, all accounts will earn interest up to 58 years age of a member”.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

    🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

    EPFO FAQ which 142 says that “Will my inoperative account earn interest? – No. However, at present, all accounts earn interest up to 58 years age of a member.”

    The reader pointed out that FAQ 141, 142 contradicted FAQ 44, 55 and wanted to know if it was okay to keep the EPF funds till the age of 58 years or should he withdraw the funds? Let’s try to answer these questions:

    How long will an EPF account earn interest if there is no contribution for 3 years or more than 3 years?

    The EPF account will continue earning interest till the employee reaches the age of 58. In April 2016, the EPFO decided to give interest on all accounts till the employee attains the age of 58 even if the account does not receive any contributions. An EPF account becomes inoperative as mentioned in the FAQ 141 above in the following conditions:

    1. No contribution is received/withdrawal application is made even after completing 36 months since retirement after the employee attains the age of 55 years.
    2. Due to permanent migration abroad
    3. Due to the death of the employee

    So, it can be seen that the EPF account becomes inoperative only in a few conditions the most common of which is no contribution for three years from the time of retirement. In a normal case, the account will continue to remain operative till the employee reaches the age of 58. Regarding the interest, all accounts will continue to earn interest till the employee reaches the age of 58 (FAQ 142).

    It seems likely that the FAQs 44 & 55 were not amended when the EPFO decided to pay interest on all accounts till the age of 58. It should also be remembered that accumulated balance in the EPF account is exempt from tax only if the employee has rendered five years of continuous service (in one or more organizations).

    However, the interest earned after leaving employment is fully taxable in the hands of the employee and is to be declared under the head “Income from other sources”. So, the interest earned during the period when no contribution is received in the EPF account is taxable.

    Is it okay to keep the EPF funds till the age of 58 years or should the funds be withdrawn?

    EPF interest rate for the FY 2019-20 was 8.5%. This is an excellent rate considering the rates being offered by other fixed-rate instruments like FDs and Government bonds. The rate for the financial year 2020-21 has not been decided yet but is likely to be still close to 8%. So, withdrawing EPF is not a good option unless the employee is in urgent need of money. The tax implications also need to be remembered, as mentioned above. If you withdraw EPF before completing 5 years of continuous service, the entire withdrawal will be taxable in your hands. So, a decision on withdrawal should be made after considering all these aspects.

    Do share this article with your friends using the buttons below.

    🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
    Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
    New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
    • Follow us on Google News.
    • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
    • Join our YouTube Community and explore more than 1000 videos!
    • Have a question? Subscribe to our newsletter with this form.
    • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

    Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

      Explore the site! Search among our 2000+ articles for information and insight!

      About The Author

      Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
      Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
      Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
      Our new book for kids: “Chinchu gets a superpower!” is now available!
      Both boy and girl version covers of Chinchu gets a superpower
      Both boy and girl version covers of Chinchu gets a superpower.
      Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
      Feedback from a young reader after reading Chinchu gets a Superpower (small version)
      Feedback from a young reader after reading Chinchu gets a Superpower!
      Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
      Buy the book: Chinchu gets a superpower for your child!
      How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
      Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
      We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
      About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
      Connect with us on social media
      Our publications

      You Can Be Rich Too with Goal-Based Investing

      You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
      Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

      Your Ultimate Guide to Travel

      Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)