Paragraph 72(6) of Employees' Provident Funds Scheme, 1952 ("Scheme") sets out scenarios when a members' money with Employees' Provident Fund Organisation ("EPFO") is transferred to an account called "Inoperative Account".

By notification number G.S.R. 1065(E) dated 11th November 2016 ("Notification"), the Ministry of Labour and Employment has diluted the above provision of the Scheme. The below tabular chart sets out change brought by the notification:

Para

72(6) of Scheme

Prior Notification following amount would be transferred to "Inoperative Account" and consequently no interest will be earned on such account.

Post Notification following amount would be transferred to "Inoperative Account" and consequently cease to earn interest immediately or after 36 months.

Supplementary Contributions which could not be remitted due to want of latest address of the member.

Supplementary Contributions other than on account of litigation or default by establishment or claim settlement amount received back undelivered not attributable to the member.

Amount remitted by EPFO is received back undelivered and the same is not claimed again within a period of 3 years from date it became payable.

No change.

Accumulations of a member who has either ceased to be employed or died but no application for withdrawal/transfer was made by the member/relative of member within 36 months from it becoming payable.

Accumulations of a member who has retired from service after attaining age of 55 years or migrated abroad permanently or died but no application for withdrawal was made by the member/relative of member within 36 months from it becoming payable.

To understand the above changes, please see below illustrations:

  1. Mr. X, an employee of M/s. ABC Ltd retires from the company upon attaining age of 55 years on 30th November 2016. Mr. X however does not withdraw money from EPFO.

View: Mr. X will continue to earn interest on the money lying with EPFO for 36 months beginning from 1st December 2016 till 30th November 2019. Post 30th November 2016, Mr. X's account with EPFO shall automatically become inoperative account and will not earn any interest.

  1. Mr. X, an employee of M/s. ABC Ltd. He resigns from the services of the company upon attaining age of 45 years on 30th November 2016. Mr. X however does not withdraw money from EPFO.

View: Mr. X will continue to earn interest on the money lying with EPFO till the time, Mr. X dies or Mr. X migrated abroad permanently.

Even after death or permanent migration from India, Mr. X's account with EPFO will continue to earn interest for 36 months from the date the amount became payable. Post 36 months the money would be transferred to inoperative account.

  1. Mr. X, an employee of M/s. ABC Ltd. M/s. ABC Ltd provide retirement age as 60 years. Mr. X resigns on attaining age of 58 years.

View: Pursuant to the notification, until Mr. X withdraws entire money lying in his account, EPFO will have to pay interest as the account would not be considered to be an inoperative account. For this illustration, it is presumed that both Mr. X and M/s. ABC Ltd. continue to contribute into the provident fund till Mr. X resigns. Thus in other words, EPFO does not consider Mr. X's account inoperative post Mr. X attaining age of 55 years.

  1. Mr. X, an employee of M/s. ABC Ltd. He dies at the age of 35 years on 30th November 2016. Mr. X's relative however does not withdraw money from EPFO.

View: Mr. X's account with EPFO will continue to earn interest on the money lying with EPFO for 36 months beginning from 1st December 2016 till 30th November 2019. Post 30th November 2016, Mr. X's account with EPFO shall automatically become inoperative account and will not earn any interest.

Thus as observed above, it would be incorrect to presume that the "Inoperative Account" will earn interest at all times. There are exceptions as cited by way of illustration 4 above.

BENEFITS:

"The amendments will benefit employees who leave mainstream employment and take up self-employment to fulfil their entrepreneurial goals or take up employment with small employers not covered under EPF scheme. Such employees can now leave their EPF fund balance with the authorities and continue to receive interest. ..."1

Illustration: Mr. X, an employee of M/s. ABC Ltd. M/s. ABC Ltd provide retirement age as 55 years. Mr. X. resigns just before turning 55 (say at the age of 54 years 11 months 29 days) in order to continue to enjoy the benefits even after attaining the age of 55 years.

View: Generally at the age of 55 years, people tend to withdraw the money for various personal uses. Thus the possibility of any member not withdrawing the money is very less. Be that as it may, even in above illustration, in my view, pursuant to the notification, until Mr. X withdraws entire money lying in his account, EPFO will have to pay interest as the account would not be considered to be an inoperative account.

GREY AREA:

The notification mentions employee retiring from service upon attaining the age of 55 years. However in practice, many employers provide retirement age as 58 years or 60 years. Thus in such cases, it is not clear how the authorities would interpret the notification.

Illustration: Mr. X, an employee of M/s. ABC Ltd. M/s. ABC Ltd provide retirement age as 60 years. Mr. X retires on attaining age of 60 years. However till retirement, Mr. X and M/s. ABC Ltd continue to contribute into the provident fund.

View: The employee's account will not be considered as inoperative till the employee attains retirement age as per employment contract. However, post retirement such employee will continue to enjoy interest for 36 months after which the amount lying to employee's credit with EPFO would be transferred to the inoperative account.

Footnotes

1 'Even idle EPF accounts will earn interest', Times of India, Mumbai edition dated 16-11-2016 pages 1 and 22.

Source: http://timesofindia.indiatimes.com/india/Even-idle-EPF-accounts-will-earn-interest/articleshow/55447455.cms

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