Withdrawal from EPF account proposed to be restricted ?!!!
In September 2010, the Indian Government (Government) imposed major restrictions on the eligibly of International Workers to withdraw from Employees’ Provident Fund (EPF). Coming on the heels of such restrictions imposed for International workers, the EPF Authorities have now proposed similar changes to EPF Rules for local Indian employees. Currently, EPF Authorities are in the process of gathering data from various regional offices to present a strong case to Government for such change
EPF is primary social security scheme in India to which major part of contributions made by employer and employee are allocated. As per the existing Rules, an Indian employee is entitled to withdraw such contributions two months after leaving employment with a covered employer. However, there is a condition that the employee should not take up fresh employment with another covered employer during the said period of two months. Where the employees takes up employment with another covered employer during the said period of two months, the Rules provide that EPF balance with the prior employer should be transferred to the EPF account of the employee opened under the new employer.
EPF Authorities have done a recent analysis on the existing pattern of withdrawal by employees which has highlighted that the majority of employees withdraw their EPF balances with every job change, defeating the very objective of social security. The basic premise of EPF Scheme is to provide compulsory saving for old age when employee is not able to earn. Further, frequent withdrawal by employees also impacts the earnings of EPF as the funds are available for investment by EPF Authorities for very short period.
Following changes are proposed in the EPF Rules:
- Streamlining the process of transfer of employee’s EPF balance from one employer to another;
- Deny pre-mature withdrawal of EPF balance barring exceptional circumstances;.
- Restricting advances/loans under the EPF Scheme to only once in ten years;
- Pre-mature withdrawal to be permitted only in case of death, permanent and total disablement, mental infirmity and in case of leaving country for good;
- Providing a lock in period of 3 years to be eligible to withdraw from EPF for an employee quitting job and taking up self employment.