MC EXCLUSIVE EPFO official says full withdrawal timeline revised to 12 months to ensure interest benefit to subscribers

EPFO 3.0: Myths and Facts

The government is of the view that the EPFO subscribers should get the benefit of interest credited to accumulated corpus every year, and thus it has increased the time period for full withdrawal to 12 months from 2 months earlier, a senior government official has told Moneycontrol.

"By ensuring that full withdrawal happens only after 12 months, the subscriber will be able to receive the interest credited from EPFO to their account at least once," the official said while responding to a query on the rationale behind revising the timeline of full withdrawal.

According to latest rules, 25 percent of contribution and applicable interest will be earmarked as minimum balance to be maintained at all times by the subscribers. In case of a job loss too, this rule will be applicable, but for a period of 12 months, which was 2 months earlier.

For instance, if an EPFO subscriber accumulates Rs 10,000 in the PF account, the person can withdraw only Rs 7,500 till one year of unemployment. "In this period, the Rs 2,500 remaining the EPFO corpus will receive the interest rate credited by the Fund," the official added.

"We’ve often seen that full money is withdrawn after two months of unemployment, and re-employment takes place soon afterwards. In such cases, no benefit of interest is availed by the subscriber," the official added. "The government’s intention is to make subscribers avail the interest rate benefit, and see their corpus grow."

Data shared by EPFO showed that 50% of the EPF members have less than Rs 20,000 at the time of final settlement. 75% of EPF members have less than Rs 50,000 at the time of final settlement, while 87% of the EPF members have only less than Rs 1 lakh at the time of final settlement.

"The data clearly shows that subscribers are unable to build any corpus which they can benefit from. That’s why the timelines have been revised," the person told Moneycontrol.

According to sources, the total corpus of EPFO is close to Rs 26 lakh crore, and total active subscribers, or contributing members, are around 7.5 crore.

During FY25, there were 1.25 crore re-joiners were exited members who had re-joined as per the net payroll data. This implies that if these members had fully withdrawn their PF balance as well as pension balance, they would have lost their future social security benefits and pension eligibility, an EPFO official explained.

Experts said the reasons provided by the EPFO for the extension of the time limit for full withdrawal appear to be sound. The argument is to boost the withdrawal-benefit corpus for members through interest accrual, and its compounding effect.

"For employees, the interest benefit over the period of the 12 months (for EPF) or the 36 months (for Pension) is unlikely to outweigh the need of the employee to have access to ready cash in case of unemployment. That said, it may prevent employees from hastily making a withdrawal of their entire corpus which may benefit them in the long run if they do find alternate employment," said Vinay Joy, Partner at Khaitan & Co.

Rahul Singh, Associate Professor at OP Jindal Global University said the Provident Fund is basically a social security instrument, and not a contingency fund. "This decision ensures that 25 percent of the employee provident fund continues to earn higher interest rate at 8.25 percent for long term. This move promotes financial discipline and prudence," he added.

The latest norms, especially for the unemployed, are not any indication of lack of income earning opportunities but the intent is ease of living and to provide relief during the period of transition to the next income earning opportunity which could either be a salaried job, self-employment or entrepreneurship, said Sandeep Vempati, Economist and Member of the Bharatiya Janata Party (BJP).

FAQs

Q. What the latest norms on unemployment say?

A. As per the previous provisions, in case of lockout/closure of establishment for more than 15 days, and the employees are rendered unemployed without compensation or employee has not received wages for more than 2 months continuously (for reasons other than strike), then the employees (EPFO member) can withdraw up to 100 percent of their PF corpus.

The new provisions, however, mandate withdrawal of up to 75 percent of the corpus in the similar situation for a period of 12 months and full withdrawal afterwards.