Here's why the new EPF rules make good sense in the long-run

• Employees can now withdraw 75% of the Employee Provident Fund (EPF) if they’ve been unemployed for a month.
• This also means that the EPF account won’t be shut.
• The continuity of the EPF account is crucial for pension and taxation on withdrawals.

There have been a number of changes made to the Employee Provident Fund (EPF) over the past couple of years, so many that it is sometimes hard to keep track of. Most recently, however, the big change has been that subscribers can withdraw 75% of their EPF balance provided that they’ve been unemployed for at least a month.

And, you won’t have to close your account.

This is important because according to earlier rules if someone’s been unemployed for more than two months, they could withdraw their entire balance. But, that also meant that they would have to discontinue their account.

The account lives on

The EPF is the culmination of your contribution, your employer’s contribution and interest accrued on that principal amount. So, this measure lets you liquidate your investment like an advance against the principal.

Liquidity may be the short-run gain, but in the long-run, the survival of the EPF account is much more significant.

As per the rules of the Employee Provident Fund Organisation (EPFO), in order for a subscriber to be eligible for pension, they have to maintain their EPF account for at least 10 years. In case the account shuts down before the stated time period, the process will have to be started all over again with a new account.

So since your account won’t be discontinued if you’re withdrawing 75% of your EPF, it will remain eligible for pension.

That being said, the continuity of your account is also important for taxation purposes. Any withdrawals that are made from the EPF account before five years are taxable. But should your account stay intact, the withdrawals are completely tax-free after the first five years.

The withdrawal you make if you’ve been unemployed for a month is tax-free in either situation, but the interruption would affect withdrawals for marriage, education, home loans etc. And, it’s not just the interest that’s taxed. It’s the principal amount as well.

Overall, the EPFO has taken progressive steps towards evolving the fund for today’s market even though the latest interest of 8.55% is the lowest it has witnessed in 5 years. They’ve introduced equity traded funds (ETFs) instead of being limited to fixed income instruments. Reports say that the EPFO may even have plans of letting subscribers choose the amount of money they would want to be put into equity instead of the blanket 15% implemented right now.