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The Employee provident fund (EPF) is a retirement saving scheme backed by the government of India and is available for salaried employees. It is managed by the Employee Provident Fund Organization (EPFO). The Employee Provident fund and the Employee Pension Scheme are the two schemes offered under the Employee Provident Fund and Miscellaneous Act 1952.
Consider the fact that the bank fixed deposit rate was 9.5% in 2011, a decade back and the Employee Provident Fund interest rate was 9%. Today the bank Fixed deposit rate is just 5% per annum and the EPF interest rate is 8.5%. This is much more than the bank fixed deposit rate and the other advantage is that it is backed by the government of India.
The organizations that have more than 20 employees are required by law to register for the EPF scheme while those having lesser employees can do so voluntarily.
The contributions made by the employer in the EPF scheme shall be 12% of the basic wages, dearness allowance and retaining allowance paid to the employees on a monthly basis. Of the 12% contribution, 8.33% goes to the pension fund and 3.67% to the EPF fund.
The employees also make a matching contribution of 12% and this takes the total contribution to 24%. The maximum salary limit for EPF contribution is less than Rs. 15,000. A member can make a voluntary contribution in excess of 12% of Rs. 15,000. Employees who earn more than Rs. 15,000 can also register for the EPF account after getting approval from the assistant PF commissioner.
The EPF contribution for the newly recruited female employees has been reduced to 8% from 12% in the budget 2018 and this would be available to the female employees for the first three years of employment.
A company can make a contribution of 10% to EPF under certain situations; when it has less than 20 employees, suffered losses more than its net worth, and belongs to the brick, jute, or guar gum industry.
Universal account number (UAN) is a unique 12 digit number allotted to the EPF member. It remains valid throughout the life of a member and does not change with their employment. It can help in the transfer of PF funds. If a person has a UAN number he can print the updated passbook anytime.
Some of the other key features of the EPF scheme are-
- A daily rated employee or a piece rated employee can become a member of the EPFO. In this case, the wages paid in a calendar month will be taken to determine his contribution.
- An employee can’t contribute to EPF after leaving service. An equal contribution has to be matched by the employer.
- If an employee has made his contribution to the EPFO but the employer has not, a complaint can be lodged by EPFO with the police for action against the employer.
- The provident fund enjoys protection against attachment by any court and can’t be attached against any liability.
- The employee provident contribution should be made by the employer till the date of an employee leaving service irrespective of the age of the member.
- In case of a change in employment, a member should get his account transferred to the new establishment by submitting Form 13(R).
- There is no age restriction for becoming a member of PF but an employee who has already reached the age of 58 years can’t become a member of the pension fund.
- When an organization is having its own private PF Trust an employee can join the private PF Trust, but the employee will be governed by the pension and EDLI schemes.
The private trusts must obtain an exemption from EPFO to enjoy income tax benefits.
- In the absence of nomination, the PF amount is paid to the family members in equal shares.
- A person can lodge his grievance online at https://epfigms.gov.in. He can enter his details, fill grievance category, description of grievance, and upload supporting documents.
- A member can update their Know Your Customer (KYC) details and it helps in providing better services. The following documents are considered for KYC-
Permanent Account Number (PAN).
Bank account number.
EPF can be withdrawn partially or completely from the account. The total amount can be withdrawn only after retirement or after two months of job loss. Partial withdrawal of EPF can be done during a medical emergency, construction of the house, higher education, or marriage of self, son, daughter, brother, or sister. For withdrawal of EPF early retirement is when a person crosses 55 years of age. The EPFO allows withdrawal of 90% of the corpus amount 1 year before retirement provided the person is not less than 54 years of age.
The Employees Provident Fund has an exempt-exempt-exempt status. It is exempt from tax at the time of maturity. The contributions to EPF as well as the interest received on contributions are also exempt from tax.
It is taxable in case the total contribution to the EPF account, NPS, and superannuation fund by the employer exceeds Rs. 7.5 lakh in a financial year.
If the withdrawal is made from EPF after working for 5 continuous years the withdrawal is exempt from tax. But if the continuous service is less than five years it is taxable in the hands of a person. If the withdrawal amount exceeds Rs 50,000 a TDS rate of 10% will be applicable.
Deductions are made for EPF on a monthly basis and over a period of time, an employee can accumulate a large amount of money. This is helpful during retirement where an individual can maintain a good lifestyle.