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FAQs For NRIs: Your PF Account In India

Updated on Jun 21, 2021
Row of applicants sitting on chairs, hiding behind question marks

Many Indians work abroad especially in developed countries such as the United StatesUnited Kingdom, and Canada because of higher pay, higher standard of living, and better health care. Remittances sent by Indians abroad are one of the biggest contributors to the Indian economy.

Let's say you have everything ready, you have packed your bags, and are now ready to leave the country. Whether you are leaving India for good in search of a better job or you have been given an international assignment, you would have worked in India for a while and contributed to some form of government-backed savings scheme.

We will look at what to do with your Employee's Provident Fund (EPF) account and move on to the frequently asked questions on the EPF account by Non-resident Indians (NRIs). 

What Is EPF?

Provident Fund (PF) or Employee's Provident Fund (EPF) is a government-backed retirement savings scheme where you and your employer contribute money over a long period so that it forms a considerable sum at the time of your retirement. Organizations with more than 20 employees are required by law to register for the scheme.

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The total accumulated amount will be given to you when you retire if certain conditions are satisfied.  You can also withdraw your EPF partially under certain circumstances.

The scheme is managed by the Employees' Provident Fund Organisation (EPFO) under the Employees' Provident Fund and Miscellaneous Act, 1952.  

EPF's Interest Rate & Taxation

EPF offers attractive interest rates of 8.5% for the financial year 2020-21. It enjoys Exempt-Exempt-Exempt (EEE) status in terms of taxation. This means the contributions are deductible from income before tax under Section 80C and the maturity amount is tax-exempt under certain conditions. Lastly, the interest accrued on your contributions is also tax-exempt.

However, starting from April 1, 2021, if you are contributing more than Rs 2.5 lakh to your PF, the excess interest on the contribution above Rs 2.5 lakh will be taxed as per the slab rates applicable to the taxpayer. 

Nevertheless, EPF is a convenient saving tool plus a low-risk investment due to government-backing and also offers a pension. For many who work at private organizations, EPF is the only retirement planning tool.

EPF Contributions By Employee & Employer 

Under the EPF scheme, your employer deducts 12% of your basic salary to monthly contribute towards your EPF account. This contribution is often matched by your employer, i.e another 12%. So, in total, 24% of your basic salary goes to the scheme. 

However, 12% of the employer's contribution does not go to your EPF account. Only 3.67% of the contribution is for your EPF account and the remaining 8.33% is directed towards your Employee's Pension Scheme. 

Do note that the EPF calculation is only on your 'basic salary' which can comprise your basic and dearness allowance (DA). It does not include HRA, conveyance allowance, special allowance, or other benefits given in your salary slip. 

For private companies, there is no DA, so EPF is based on the 'basic' component of your salary. 

Voluntary Provident Fund 

You can also contribute a higher amount than the minimum required contribution to your EPF account. The excess deposit is termed as 'Voluntary Provident Fund'. However, the employer's contribution will remain the same.   

Universal Account Number 

Every employee under the EPF scheme is allotted a unique Universal Account Number (UAN) by the EPFO. The employee's EPF account is linked with the UAN which is valid throughout the life of the employee. 

When switching jobs, the EPF account will stay the same. Employees can give their EPF account details upon joining a new company. This way the contributions towards the EPF account can continue even after switching to a new job. 



NRIs' Frequently Asked Questions On PF Account 

If you are an Indian planning to leave the country and settle abroad and contribute to EPF or are a Non-resident Indian having an existing EPF account in India, here are the FAQs that you should know about. 

Can NRIs Have An Active PF Account?

NRIs can have an active PF account that earns interest till the age of 58 or until withdrawal.

What Happens If An NRI Opens A PF Account? 

The only way to have an active PF account by an NRI is to have the account opened when he/she was working in India as an Indian resident and was contributing towards it. 

If you are a resident Indian who has been contributing towards the PF account while working in India, the account can remain operative and can continue to earn interest on the accumulated sum even after becoming an NRI. 

What Happens To The EPF Account If The NRI Doesn't Close It Before Leaving The Country?

The EPF account will continue to earn interest if an NRI doesn't close it before leaving the country unless there is an application for withdrawal till the person attains 58 years of age. 

However, the PF account will become inoperative if an employee does not apply for withdrawal within 36 months of retiring after attaining 55 years of age. If the person is going to settle abroad permanently, it is advised to close the account after withdrawing the total balance. 

What Is The Current Interest Rate For A PF Account In India?

The current interest rate for a PF account in India is 8.5%.

What Are The New Rules On Provident Fund Accounts For NRIs In 2021?

According to the Budget 2021, if an employee's contribution towards the PF account exceeds Rs 2.5 lakh in a financial year, the interest earned on the contributions over Rs 2.5 lakh will be taxable in the hands of the employee.

Additionally, if there is no contribution by the employer to the PF account (usually for government employees), the interest is tax-free for deposits up to Rs 5 lakh in a financial year.

As per the Employee Provident Fund Act, if the person is no longer employed in India, he/she will not be eligible to contribute to the PF account. However, it will remain operative even after becoming an NRI.

During the period when the contributions don't get credited to the PF account, the interest earned becomes taxable in his/her hands in the year of credit

What Are The Rules For EPF Withdrawal? 

As per the norm, here are the following scenarios where you can withdraw 100% of the EPF:

  • You have attained 58 years of age 
  • If you are unemployed for two months or more
  • Upon premature death of the subscriber, the entire corpus is given to the appointed nominee

You can also withdraw if you have completed 5 years of service after being unemployed for 60 days, even if you have not attained the age of 58.

You can be permitted to make partial withdrawals under certain circumstances such as medical emergencies, marriage, home loan repayment, buying a house if you meet the requirements. 

Can I Withdraw My EPF When I Am Settling In Another Country?

If you are settling in another country, you can withdraw your complete EPF balance even before your retirement date and close your account. However, you will be required to provide proof that you are leaving India to work and/or settle abroad.

What Is The Process Of Closing A PF Account And Withdrawing The Money?

  • Get the EPF Withdrawal Form from your employer. Or download it from the EPFO portal. There are two forms: Aadhaar based Form and the Non-Aadhaar Form
  • Use the Aadhaar based Form if your UAN is linked with your Aadhaar. You can bypass your employer & directly go to the EPFO office 
  • Or apply online through the UAN member unified portal or the UMANG App to withdraw your PF balance
  • Fill up the withdrawal form and mention the reason for withdrawal as abroad settlement 
  • Submit the form along with the supporting documents 
  • The EPF amount will be deposited into your bank account in 1-2 weeks

As An NRI, Where Can I Invest The Money Withdrawn From A PF Account?

There are various options to invest the money withdrawn from a PF account. Here are some of the options:

  • Fixed Deposits (FDs): Bank deposits are one of the safest options. NRIs can transfer the amount on their PF account to their NRO (Non-Resident Ordinary) bank account and enjoy attractive interest rates and earn higher yields on their Indian money.  Read more on NRI banking
  • NRIs (between the age of 18-60 years) can open a National Pension System (NPS) account if they have a PAN card or an Aadhar card. To invest in NPS which is a retirement savings scheme, NRIs need to have NRO or NRE (Non-Resident External) Account 
  • Invest in the Indian stock market. Here's how
  • Invest in Indian Real Estate  
  • Invest in Public Provident Fund (PPF), a government-backed savings scheme. NRIs can still contribute to their PPF account irrespective of their residential status. But the PPF account should have been opened when they were a resident Indian. NRIs are not allowed to open PPF accounts in India.

When Does A PF Account Become 'Inoperative'?

A PF account becomes inoperative and does not earn further interest if the employee retires after attaining the age of 55 or moves to another country permanently or dies and there is no application for withdrawal of the accumulated balance within 36 months.

When Is EPF Withdrawal Taxable? 

If you have completed 5 years of service, you can withdraw your EPF corpus with no tax. 

If a withdrawal is made before the completion of 5 years of service, additional TDS is levied. The TDS is deducted at the rate of 10% if you furnish your PAN and 34.608% if you are not able to furnish your PAN. 

TDS is not levied if the total amount of withdrawal is below Rs 50,000. 

Will My PF Account Continue To Earn Interest After Becoming An NRI?

When you become an NRI and stop contributing to your PF account, it will continue to earn interest till you are 58 years of age or until the date of withdrawal.  

Should I Close My EPF Account If I Have To Go Abroad For A Short Duration? 

You shouldn't close your EPF account if you are going to work abroad for a short duration. You should avoid withdrawing the balance till maturity if you are going to come back to India. Your corpus will remain with the EPFO and will keep earning interest. 

Additionally, working in a foreign country will require you to contribute to a retirement scheme/social security scheme just like the EPF. You may not be able to reap the retirement benefits even if you contribute because of the short duration of your stay abroad. Your money may get trapped in the country where you are not to live in retirement.  

How Can I Avoid The Social Security Scheme Of A Foreign Country? 

You will need to get the Certificate of Coverage (COC) from the EPFO. The COC exempts you from your host country's social security scheme because you are already paying a regular contribution to a retirement scheme in India.

The EPFO is authorized to issue the COC to the employees working in the countries that the government of India had signed the social security agreements (totalization agreement). Till now, India has signed the agreement with 20 countries including Germany, France, Belgium, Canada, Japan, etc. 

India is yet to sign the agreement with the U.S. and it may be happening soon. Currently, the U.S. has signed with 24 countries.

You can visit the International Workers Portal given on the EPFO website to generate COC online.

Can I Transfer My EPF Balance To My PPF Account As An NRI?

EPF and PPF (Public Provident Fund) are two different saving schemes. You won't be able to transfer your money from your EPF account to your PPF account.

Also, NRIs are not allowed to open a PPF account. Only Indian residents can open a PPF account. 

In case you already have a PPF account before getting the NRI status, you can keep the account open until maturity with some limitations such as it cannot be extended for another 5 years, unlike Indian residents. 

You should intimate the bank or post office within 1 month of change for citizenship or residential status.  Also, once your status changes, you cannot make fresh contributions to your PPF account. 

What Is The Difference Between EPF And PPF?

The PPF is a popular long-term saving scheme backed by the government of India which matures in 15 years. Indian citizens can open a PPF account including non-salaried individuals and a minor.

You cannot invest more than Rs. 1.5 lakh a year and a minimum of Rs. 500 is to be contributed in a year. The current PPF interest rate is 7.1% per annum. 

Your PPF contribution is tax-exempt under section 80C of the Income Tax Act and the returns are not taxable as well. 

On the other hand, EPF is a retirement saving scheme for salaried employees where both the employee and employer make contributions to the scheme. A total minimum investment of 24% of the basic salary is directed towards the EPF. 

Takeaway

Ultimately, the main goal of saving for retirement and making financial investments is to create wealth and achieve financial security so that when we retire we can afford to live comfortably. To build a financially secure future, having a better understanding of your saving schemes and retirement planning tool is crucial.

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