Everything You Need To Know About EPF

Employee’s Provident Fund or the EPF accounts form a significant portion of the salary (CTC). Often, many wonder about the benefits of EPF, and few also wish that if the amount could be added to their monthly income. Very few are aware of the fact that EPF is one of the most important aspects of the salary, especially if you take into consideration the risks, rewards, and other perquisites. 

What is EPF?

EPF is a retirement benefits scheme available to all salaried employees and is a pivotal tool for financial planning, particularly retirement. EPF primarily has two components under the Employees’ Provident Funds and Miscellaneous Provisions Act of 1952 - Employees’ Provident Fund Scheme and Employees’ Pension Scheme. While the Provident Fund Scheme was introduced in 1952, the Pension Scheme was introduced in 1995. These are two different retirement saving schemes which are covered by any salaried individual if he is earning more than Rs. 6500 per month as basic salary.

Structure of EPF

Generally, both the employer and the employee must contribute 12% of the basic pay along with dearness allowance towards EPF and EPS. The contribution of the employee is usually added to EPF while 8.33% of the 12% employer’s contribution is for EPS and the rest for EPF. For those who have a salary cap of more than Rs.6500 per month, EPS contribution is restricted to 8.33% or Rs.541 per month while the rest goes to EPF.

These contributions earn a fixed interest set by the EPFO. The amount of interest to be received on the total EPF deposit along with the total accumulated amount is totally tax-free, i.e. the employee may withdraw the entire fund without worrying about paying any kind of tax on it.

Interest

The Central Government, in consultation with the Central Board of Trustees, determines the EPF rate. Only the EPF component generates interest while the pension scheme is free of interest. 

Tax benefits

The contribution of the employer is exempt from tax up to 12% contribution while the contribution of employees is eligible for tax benefits under section 80C of the Income Tax Act. EPF is currently under the EEE norm which indicates that the money invested, interest earned and money withdrawn after a specific period of 5 years are exempted from income tax.

Nomination facilities

EPF has the nomination facility through which an employee can nominate his father, mother, spouse, or children following his death. At present, the Government does not allow the facility to nominate one’s siblings.

Transfer and Withdrawal Policies

An employee can withdraw EPF if he remains unemployed for at least two months. However, at the time of switching jobs, it is advisable to transfer EPF from the previous employer to the new employer. With the introduction of Universal Account Number (UAN), this process has become seamless and hassle-free.

Before completing five years with an employer, if one chooses to withdraw the EPF, the amount withdrawn is taxed according to the current income tax slab.

Usually, withdrawal is not permissible if one is still employed. However, under some special circumstances like higher education of children, marriage, medical treatment, repaying a home loan, house construction, etc., partial withdrawal is allowed. Non-refundable allowances are allowed after 5 years of membership.

If one has withdrawn due to unemployment after a service less than 10 years, he is entitled to 100% EPF including the interest. He can also receive EPS contributions based on withdrawal benefits.

Pension 

An employee starts receiving a pension from EPS amount following the completion of 10 years at a company and attaining the age of 58. He can receive the amount until he is alive and following his death, his nominated family members are entitled to it. 

Voluntary Provident Fund

One can always invest more than the regular 12% contribution. Any amount above EPF is called Voluntary Provident Fund (VPF). The excess amount is invested in EPF and is eligible for interest benefits.

UAN services

UAN is a unique number assigned to an employee which indicates that he is availing of Employees’ Provident Fund Organization service. EPFO usually manages the money in your EPF account. The UAN number is fixed throughout its lifetime and is flexible for portability. Thus if an employee changes his job and opens a new EPF account, the account can be linked directly to UAN. 

EPFO has recently introduced the facility of linking UAN to the Aadhar card. This helps the members to attain facilities more seamlessly. This process has several benefits-

• Claims can be submitted directly to EPFO without the employer in between.
• One can receive monthly updates on the registered mobile number.
• E-passbook can be downloaded anytime.
• Multiple EPF accounts can be linked.
• Personal details can be edited and updated easily.

Some special benefits of EPF

• EPF provides Life Insurance:

Many people are not aware of this benefit. Those companies which do not provide insurance cover to its employees under the group life insurance plan, have to contribute 0.5% of monthly pay towards Employees’ Deposit Linked Insurance scheme. The contribution is capped at Rs.15,000. Companies already covering the insurance of their employees are exempted from this plan. 

• RTI for EPF-related issues:

RTI applications can be made for getting information regarding EPF and issues like withdrawal, balance, and transfers.

• Opting out of EPF easily: 

EPFO guidelines state that employees with a salary of more than Rs.15,000 per month can desire not to be a part of this scheme. Hence, EPF is not a mandatory contribution. In this case, the employee is paid his entire salary without any deduction every month. An employee has to opt-out of the Provident Fund before starting the job and if he is a part of the program, he cannot opt-out of the program. 

Conclusion

EPF contribution is one of the best ways for employed people to build on a corpus for retirement or other financial needs over the long term without taking high risks. Thus one can take care of his post-retirement needs right from the early days of his service, without being anxious about it at the end of his career. It is a great plan to look after the family as well as the nominated person can continue to receive the amount following your death. With recent developments and the use of modern technology, one can easily handle everything from home with the help of their mobile devices.

Also Read: MGNREGA Scheme: All You Need To Know