What Happens to Your PF Balance When You Change Jobs or Retire
What Happens to Your PF Balance When You Change Jobs or Retire
When you leave a job and move to a new one, it’s common to forget about the money sitting in your old Provident Fund (PF) account. Many employees either delay transferring their PF balance to their new company or plan to withdraw it much later. While it may seem harmless to leave the money untouched, after all, it keeps earning interest, there are important rules and timelines you should know. These rules decide when your account is considered “inactive” and what happens to the money if it stays unclaimed for years.
When a PF Account Becomes Inoperative
A PF account does not become inactive the moment you stop contributing. Earlier, if there were no deposits for 36 months, the account would be called “inoperative.” But since 2016, the rules have changed. Now, a PF account becomes inoperative only if you do not withdraw the balance within 36 months of retiring after turning 55. This means that even if you quit your job and do not transfer your PF to a new employer, your account will keep earning interest and remain active until you reach that age and have not applied for withdrawal.
Tax on Interest When You’re Not Working
However, there is a catch. Even though the account stays active and continues to earn interest, the interest you earn after you stop working is no longer tax-free. According to a ruling by the Bengaluru bench of the Income-Tax Appellate Tribunal (ITAT), this interest will be treated as your income and taxed in the year it is credited. So, if you are keeping the money in your old PF account for a long time without making contributions, be aware that the extra income from interest will be taxable.
The 7-Year Rule: Money Moves to the Senior Citizens’ Welfare Fund
If you retire at 55 and do not withdraw the money within three years, your PF account will finally be declared inoperative. But the journey of your savings does not stop there. If the balance remains unclaimed for seven years after the account becomes inoperative, the money is transferred to the Senior Citizens’ Welfare Fund (SCWF). This rule applies to all PF accounts, including those managed by exempted establishments. Every year, by September 30, authorities must identify such unclaimed amounts and move them to the SCWF by March 1 of the following year.
The 25-Year Rule: Time to Claim Your Money
Once your PF money enters the Senior Citizens’ Welfare Fund, you still have time to claim it. The rules give you 25 years from the date the amount is credited to the Fund to apply for it. If you do not claim it within this long period, the money will go to the Central Government permanently unless a court orders otherwise. That is why the authorities advise employers to keep detailed records of employees whose funds are transferred, including PF account numbers, personal details, and nominee information.
Why You Should Act Early
Leaving your PF balance untouched for years might look like an easy option, but it is not always wise. The interest you earn after you stop working is taxed, and if you wait too long after retirement, you risk having your money moved to the Senior Citizens’ Welfare Fund. If you have retired at 55, it’s better to withdraw your PF balance as soon as possible. And if you are still working elsewhere, transferring the balance to your new employer is a smarter move. This way, your PF keeps growing into a bigger retirement fund without the risk of becoming inoperative or being taxed more than necessary.
By understanding these rules and acting on time, you can make sure your hard-earned PF savings stay safe and continue to support you when you need them the most.
