The Employees’ Provident Fund or EPF is a popular savings scheme that has been introduced by the EPFO under the supervision of the Government of India.
The employee and employer each contribute 12% of the employee’s basic salary and dearness allowance towards EPF. The current rate of interest on EPF deposits is 8.15% p.a.
The accrued interest on the EPF is tax-free and can be withdrawn without paying for the same. Employees avail of a lump-sum amount on their retirement, which is inclusive of the accrued interest.
EPFO - Employee Provident Fund Organization
EPFO or Employees’ Provident Fund Organisation is a non-constitutional body that promotes employees to save funds for retirement.
EPFO was launched in 1951 and is governed by the Ministry of Labour and Employment. It offers schemes that cover Indian and international workers.
The Employees’ Provident Fund Scheme Act, 1952, the Employees’ Deposit Linked Insurance Scheme Act, 1976, and the Employees’ Pension Scheme Act, 1995 are the three Acts that govern the EPF programme, which has served more than 5 billion people. The fund is accumulated by monthly monetary contributions made by both employees and their employers. As their respective portion of the EPF contribution, each party contributes 12% of the employees’ monthly salaries.
The interest earned on the fund as a result is pre-fixed and established by the Employees Provident Fund Organization. The interest that has accrued in the EPF is tax-free and may be withdrawn without being charged. When an employee retires, they get a lump sum payment that includes all accumulated interest.
Schemes Offered Under EPFO
- Employees’ Provident Funds Scheme 1952 (EPF)
- Employees’ Pension Scheme 1995 (EPS)
- Employees’ Deposit Linked Insurance Scheme 1976 (EDLI)
Objectives of Employees Provident Fund (EPF)
- In order to guarantee that each employee has a single EPF account.
- It must be as easy as feasible to comply.
- Make sure businesses consistently abide with all EPFO laws and regulations.
- To improve their infrastructure and ensure the dependability of internet services.
- Online access should be available for all member accounts.
- The 20-day claim settlement period will be cut to 3 days.
- Promotion and encouragement of voluntarily compliance
UAN and EPFO Portal
All EPF subscribers have online access to their PF accounts and can execute operations such as withdrawal and checking their EPF balance.
EPFO assigns each member a 12-digit number known as the UAN. Even if an employee changes employers, his or her UAN remains the same.
The Universal Account Number (UAN) simplifies access to the EPFO member portal. When a member’s job changes, his or her member ID changes, and the new ID is linked to the UAN. Employees must, however, activate their UAN to use the services online.
Application Eligibility for Employees Provident Fund (EPF)
Employees in both the public and private sectors are eligible for the Employee Provident Fund; therefore any employee can apply to join EPF India. A company is also considered responsible for providing EPF benefits to its employees if it employs at least 20 people.
When an employee joins the programme actively, they are deemed qualified to receive a number of advantages, including pension benefits, insurance benefits, and Employees Provident Fund benefits.
Interest of Employees Provident Fund (EPF)
Only the active PF accounts of employees who have not yet retired receive this interest. However, the interest that accumulates on these accounts is taxed according to the tax bracket of an EPF employee member. It should be mentioned as well that the Employees Pension Scheme share does not earn interest.
However, after they reach the age of 58, members are qualified to receive a pension from this cumulative amount.
Employee Provident Fund Calculation (EPF)
You may simulate how much money will accumulate in your EPF account when you retire with the EPF calculator. You may calculate the lump-sum amount, which includes the interest that has accumulated on the investment as well as your contribution and the employer’s contribution.
You can input your current age, basic monthly salary, dearness allowance, EPF contribution, and retirement age up to 58 years in the formula box that is included. You may also input the current EPF balance if you are familiar with the numbers. After you provide the essential information, the calculator will display the EPF funds that will be available to you when you retire.
Advantages of Employees Provident Fund (EPF)
- Advances and withdrawals are both permitted for employees.
- The nominees or legal heirs are entitled to the PF amount of a dead member.
- In addition to contributing to the PF, the company also makes the appropriate payments into the employee’s pension, which the employee may access after retirement.
- Employees are appropriately insured under the EDLI Scheme in order to receive the lump sum payment in the event of death while on the job.
- Employees are entitled to get tax-free returns thanks to the EEE (Exempt, Exempt, Exempt) tax advantage under the Income Tax Act, 1961.
- Special advantages are given to employees in the form of interest-bearing income added to their savings.
- If a member transfers from one establishment where the Provident Fund system is applicable to another, their PF account may be transportable.
How is Interest on EPF Calculated?
The interest extended on EPF schemes is calculated each month and is calculated by dividing the rate p.a. by 12.
Such a method helps to calculate the specific interest that is offered to member employees for a given month.
For example –
If the rate of interest is 8.5% p.a., the rate for each month would be (8.5/12) %, i.e. 0.7125%.
Now, 12% of an individual’s salary is directed towards their EPF account.
Assuming that the salary of an individual is Rs. 15,000 per month –
12% of Rs. 15,000 would accrue Rs. 18, 00 by month-end which would be transferred to the individual’s EPF account.
Now, employers contribute 3.67% towards their EPF account, while 8.5% is contributed towards their EPS account.
- The contribution towards the EPF account would be –3.67% of Rs. 15,000 = Rs. 550.
- The total contribution towards the EPF account would stand at Rs. (1800+550) = Rs.2350
- The interest accrued in one month would be Rs. 2350 x 0.7125% = Rs. 16.75
Employee Provident Fund withdrawal (EPF)
People might choose to withdraw their EPF in full or in part. However, such withdrawals are only permitted in certain situations. Several of these situations when people can totally withdraw their EPF are listed below:
- On the Retiring
- If they are unemployed for a duration longer than two months.
- While transitioning between jobs or changing careers. However, the time spent jobless should be more than two months.
Here is a list of some of those situations where people can partially withdraw their EPF:
- For a marriage.
- To further one’s education
- For building a house or buying property.
- Debt repayment for a house.
- Renovating a home or building.
EPF Form
Form | Purpose Of The Form | Application |
Form 2 | For nominating and declaring | Applicable to both EPF and EPS. |
Form 5 | For registering | Applicable to new employees registering for EPS and EPF. |
Form 5 IF | For availing a claim under EDLI scheme |
|
Form 10C | For availing withdrawal benefits or scheme certification. | EPS |
Form 10D | For availing monthly pension. |
|
Form 11 | For transferring EPF account. | EPF |
Form 14 | For purchasing LIC policy. |
|
Form 15G | For availing tax-saving benefits on interest. | EPF |
Form 19 | For settling employees provident fund. | EPF |
Form 20 | For settling employees provide a fund in case of death. | EPF |
Form 31 | For EPF withdrawal. | EPF |
EPF Taxation
If you withdraw your EPF before 5 years of employment, you will be taxed. PPF withdrawals are not taxed.
Investment in the EPF is tax deductible up to Rs 1.5 lakh per year under Section 80 C of the Income Tax Act. This is true for both employer and employee contributions. Unless you become unemployed, the interest on your EPF is likewise tax-free.
Withdrawals from the EPF are likewise tax-free if made within 5 years of creating the account. TDS is deducted from the withdrawal amount if it exceeds Rs 50,000 within 5 years of the date of opening the EPF account.
PPF account investments up to Rs 1.5 lakh per year qualify for a tax credit under Section 80 C of the Income Tax Act of 1961. The interest on the PPF is also tax-free, but it must be reported on the annual income tax return. The PPF maturity amount is likewise tax-free. In other words, PPF is tax-exempt, exempt, exempt.
FAQs
How does the PF amount from defaulting members get recovered?
Prosecution under Section 14, realization of debtors’ dues, attachments of bank accounts, attachment and sale of properties, and detention and arrest of the employer are some of the methods used to recover the PF amount from employers.
Is it possible for an employee to contribute to EPF after leaving a job?
No, an employee who has left the service cannot contribute to his or her EPF. The contributions of the employee and the employer must be matched.