EPFO Claim Settlement Rule Changes: What’s New?

EPFO (Employees’ Provident Fund Organisation) recently announced key changes to the EPF claim settlement process. The amendments will make the claims process faster and ensure there is no loss of interest to members during the claim settlement period.

Incepted in 1952, EPFO is one the world’s largest social security organisations with over 30 crore member accounts.

On November 30th, CBT (Central Board of Trustees) of EPF approved the amendment that will benefit EPFO members with more efficient claims settlement. The move also aims to address member grievances for interest loss in calculation of EPF claims process.

EPFO New Update

The CBDT approved the amendment to paragraph 60 (2) of the EPF Scheme 1952.

As per the current rule, for all claims processed by the 24th of a month, the interest on EPF balance is paid only till the end of the preceding month.

This means EPF members lose interest for the current month.

Moreover, in case the claim is not processed till the 24th of the month, there is no claim processing between the 25th and the end of the month, so that members do not lose interest for the month. Such claims are processed in the next month. This makes the process long-drawn and restricted to a window up till the 24th of every month.

New Proposal

Under the amended rule, claims will be processed throughout the month without any cut-off date.

Interest will be paid for the entire duration till the claim is processed.

For example, if a member holds an EPF balance of Rs. 20,00,000 due for settlement, and EPF interest rate of 8.25% per annum:

Monthly interest due = (20,00,000 * 8.25%)/12 = 1Rs. 3,750

If EPF member applied for claim settlement and claim was processed on 20th November,

Interest Payable for October  = Rs. 13,750

Interest Payable for November = NIL

Under the new claims settlement rule, interest will be calculated up to 20 days of December i.e.

(13,750/30)*20 = Rs. 9,166

Interest payable: Full Monthly INterest for October + Interest for 20 days of November

Interest Payable = Rs. 13,750 + Rs. 9,166

Thus, EPF member will earn Rs, 9,166 additional interest as per the new settlement rule.

Benefits of EPFO Claim Settlement Time

1. Efficient Processing: Since the claims settlement will not be restricted to any date cut-off, the claims process will be continuous throughout the month, settlements will be faster, and it will ensure timely payments.

2. No Loss of Interest: EPFO members will receive higher interest, and there will be no loss of interest during claims processing period. Members will receive a higher EPF claim amount.

3. Grievance Redressal: Interest calculation disputes will come down resulting in better experience for EPF members and the amendment will also help in better resource optimisation for EPFO.

Conditions Under Which New Rule Will Be Applicable

The proposed rule will apply to specific EPF claim settlements only and not generally to every EPF claim settlement. Amendment in interest calculation method will be applicable to:

• Settlement of accumulated EPF balance to the nominee or legal heirs after death of EPF member.

New rule will apply to full EPF withdrawal by a member upon:

• Retirement from service after turning 55 years of age.

• Retirement due to disability

• Closure of account and withdrawal due to taking employment outside India

• Closure of EPF account after two months of unemployment

The rule will not apply to withdrawals for marriage, education, or other financial needs.

Which Date Will the New Rule Be Applicable?

The official notification for the new rule has not been released yet. The new rule will be applicable only after the official notification is issued by the government. Till the official notification, the old rule is applicable for EPF claim settlement. 

What is EPF?

EPF or Employee Provident Fund is a government savings and retirement scheme administered by EPFO (Employees’ Provident Fund Organisation) for the benefit of all salaried employees in India.

Under the EPF scheme, the employer and employee both contribute 12% of employee’s basic salary to the employee’s provident fund EPF account. 

Features and Benefits of EPF Account

Retirement Savings:

EPF is a compulsory and bare minimum retirement saving for every employee that requires minimum intervention or financial planning. Since it is a mandatory contribution, it is an automatic saving that remains parked as a safe deposit for the long term. 

Interest Rate:

Current interest rate on EPF account is 8.25% per annum. The interest rate is subject to change as per government’s notifications. EPF interest rate was revised by the Finance Ministry from 8.15% in FY 2023-24 to 8.25% in FY 2024-25.

The interest in an EPF account is credited at the end of every financial year.

Tax Benefit:

Interest earned on employee contributions to EPF up to Rs 2.5 lakh per annum is tax free. Interest on contributions above Rs 2.5 lakhs is added to income for tax purpose.

For government employees where there is no employer contribution, the limit is Rs 5 lakh per annum. Interest on contributions above Rs 5 lakhs is taxable.

Prior to FY 2021-22, interest earned on any amount of contribution to EPF was tax free.

An employee’s contribution to the EPF account is eligible for deduction under Section 80C up to Rs 1.5 lakh per annum.

Online Access:

You can access your EPF account online easily through the Universal Account Number (UAN), a unique 12-digit number allotted to every member.

Withdrawal Facility:

You can withdraw funds from your EPF account partially or fully under specific conditions, such as retirement, unemployment, financial needs such as marriage, education, medical emergencies, house purchase, etc.

Voluntary Higher Contribution:

It is possible to contribute an amount higher than 12% of basic salary through VPF (voluntarily provident fund), only as employee contribution.

Eligibility:

EPF is mandatory for all registered companies (of specific establishment type) with employee strength of 20 and above. Other establishments can choose to join EPF for their employees.

EPFO mandates EPF contribution for employees earning up to Rs 15,000 per month and employees earning above Rs 15,000 can choose to join EPF scheme.

What is UAN (Universal Account Number)?

• The Universal Account Number (UAN) is a 12-digit unique number allotted by EPFO to every employee contributing to the EPF.  

• UAN remains the same throughout your life irrespective of any number of job changes. 

• Whenever you switch jobs, a new EPF Account Id is issued, this Id is linked to single unique UAN number. 

• All EPF Account Ids generated through your work life are linked under your UAN for easy record maintenance, transfer, and withdrawal of EPF fund.

• You can view your PF account balance through UAN in all EPF account Ids.

• You can view and download your EPF passbook/account statement to check contributions, interest credited, and withdrawals.

• You can apply for PF withdrawals and check your claim status through the EPF member portal using UAN.

• You can get your UAN number through your employer, your salary slip, or by logging in to EPF/UAN portal, Know Your UAN

• You can activate your UAN with your personal information such as Aadhar, mobile number, DOB, etc.

Conclusion

EPF is a compulsory saving for all employees in India. Although EPF returns are not very high, it is a safe pool of money for retirement savings built automatically with small contributions over a period of time. You can build a risk free corpus for your retirement with minimal effort with EPF and complement it with investments in other asset classes such as equities, bonds, and stocks via direct investment, or mutual funds.