EPFO: What happens to your Provident Fund if you retire early?

The Employee Provident Fund (EPF) scheme is a government-backed retirement savings plan for the employees working in the private sector. The scheme is managed by the Employees' Provident Fund Organisation (EPFO). Employees contribute a portion of their basic salary and dearness allowance every month towards EPF and an equal amount is also deposited by the employer.

The EPF scheme helps the employees to build a retirement corpus with monthly contributions during their employment period and they can withdraw the entire amount on superannuation.

However, when it comes to withdrawing this accumulated corpus, before retirement several factors come into play. As the EPF scheme is mainly aimed at retirement benefits, advance withdrawals are allowed only under certain conditions.

Many EPF subscribers often face the dilemma over withdrawal of the corpus fund in case of early retirement.  There are many benefits of maintaining your EPF account till the retirement age even after your quit your regular salaried job.   

EPF benefits till retirement age

- The contributions remain eligible for tax deduction as per the old tax regime. 

- Upon withdrawal after retirement, the entire amount is tax-exempted. 

- As it is a retirement corpus, it comes in handy for financial needs in your old age. 

- One can also make a partial withdrawal in case of emergency. 

- Even if monthly contributions are not made to the EPF account, the interest on the accumulated fund will accrue up to 3 years from the month of last contribution made to the account. Currently, EPFO offers 8.15 per cent interest rate per annum.

What will happen in case of early retirement?

This brings us back to the main question about what will happen if an employee retires at an early age and there is still time for his EPF account to mature. In such cases, the account will remain active for the next three years and will also continue to earn interest for the same duration. After three years from the last month of contribution made the account will turn ‘inoperative’. Funds in an inoperative EPF account will not earn any interest.  

For instance, if an employee retires on today's date i.e., August 2023, then the EPF account will remain active till August 2026. Following this, he will need to withdraw the money, or else the accumulated funds will stop earning further interest.

Eligibility for EPF withdrawal

As per the EPFO, an employee can withdraw his entire EPF amount only after attaining the age of 55. However, partial withdrawals are allowed before that in case of an emergency. 

Also, 90 per cent of the EPF corpus can be withdrawn at the age of 54 i.e., one year before retirement age. 

If an EPF member remains unemployed for more than 2 months the entire amount can be withdrawn.