The EPF provides retirement benefit to employees of the corporate and private sector to secure a better standard of living at retirement.
What is EPFO?
The Employees’ Provident Fund Organisation, India, (EPFO) is one of the largest provident fund institutions in the world in terms of members and volume of financial transactions that it has been carrying on. The Organisation came into being in 1952, following the Employees’ Provident Funds & Miscellaneous Provisions Act (EPF & MP Act), 1952. Later on many additions and alteration were done for enhancing the situation on employees. The EPFO head office is located in New Delhi.
The EPFO functions under the overall superintendence of the policies framed by the Central Board of Trustees. The total financial corpus managed by the EPFO is over Rs. 2 trillion and there are a total of about 40 million contributing and non contributing members in about 450,000 covered establishments.
The Employees’ Provident Fund, India
14, Bhikaiji Cama Place,
Bhavishya Nidhi Bhawan,
New Delhi-110 066
What is EPF?
The EPF (Employees’ Provident Fund) is a retirement benefit scheme that is available to the salaried employees. EPF benefits are available to establishments employing at least 20 people. Co-operative societies, employing 50 or more persons & working without the aid of power, are also come under the purview of EPF.
All employees whose emoluments (salary) exceed Rs. 6,500 per month have an option to join the EPF scheme with the consent of the employer. The employee is eligible for membership of EPF from the day s/he joins a company which is covered under the EPF & MP Act, 1952.
Both employees and employer contribute to the Fund at the “rate of 12%” of the basic wages, dearness allowance and retaining allowance (if any) payable to employees per month. Thus, the total contribution to the Fund is 24%. However, the rate of contribution shall be 10% in the case of the brick, beedi, jute, guar gum factories and coir industry other than spinning sector.
While some companies make the scheme compulsory, for the others, investment in the EPF is optional. Also, when a person leaves the company, he can transfer his provident fund to the other company where he joins.
Voluntary higher contributions are also acceptable at the joint request of the member and the employer. The “existing members” are entitled to various benefits such as withdrawals, advances, pensions, death insurance etc.
Pankaaj Maalde, head-financial planning, ApnaPaisa.com, “EPF is deducted from basic salary plus DA and not from the gross salary. Employers contribution of entire 12% goes to EPF account, whereas 8.33% of Rs. 6,500 i.e. fix Rs. 541 per month goes to EPS out of employees contribution and rest goes to EPF account.”
Interest rate for EPF
Interest rate on EPF is credited annually at the end of financial year. The rate of interest for the financial year 2012-13 is 8.6% per annum.
Are contributions made by an employee to EPF tax free?
Contributions made by an employee towards EPF are tax exempt under Section 80C, up to a maximum limit of Rs. 1 lakh which is the overall limit for exemption across all investments permissible under this section.
Is the interest credited on EPF tax free?
Mr Maalde says, “Yes, interest credited on EPF account is tax free under Section 10(12) of Income Tax Act.” However, if one withdraws before completing five years of service, then all the previous years’ income gets recomputed as if the fund was unrecognised from the very beginning (i.e., the tax benefits you received on your own contribution under Section 80 C in earlier years will get forfeited) and further the employer’s contribution and interest received will be added to your current income subject to relief under Section 89.
An employee can nominate any one or more members of his/her family to receive the provident fund in case of his death. In case, one does not have a family, s/he can nominate any other person. The nomination can be changed by the employee whenever s/he wishes to do so, within the rules of the EPFO.
EPF account number
Everyone has an EPF account number for the purpose of checking their balance and transferring their EPF account from one company to the other. The account number is a series of numbers and alphabets, also called an alphanumeric number. The first two entries indicate the regional PF office in which the employee’s company contributes his/her money. For example, if the company contributes in the regional EPF office at Bandra, Mumbai in Maharashtra, the entry will read MH/BAN. The next entry will be in digits. This will be the employer’s code, followed by the employee’s account number.
How to read EPF account balance
For those who make EPF investments, the company usually gives an EPF slip at the start of the financial year. The slip has details of the person’s contribution and interest accrued in the EPF account up to the previous year. It is provided to keep a track of the account and gives one an idea of the amount accumulated in the account.
The EPF account balance would give information on the following:
Opening balance: This is the amount in the employee’s account that you has accumulated from the beginning. This amount is further bifurcated into two categories—employee’s contribution (the amount contributed by the employee plus the interest) and employer’s contribution (the amount contributed by the employer plus the interest).
Interest: This entry indicates the interest that has been credited to the account for the financial year just gone by.
Contributions: This entry indicates the payments made by employee and the employer in the financial year just gone by.
Withdrawals: This entry indicates any partial withdrawals or advances that an employee may have taken. Swapan Khanna, co-founder, i-save, says, “Claims/withdrawals can be made from the EPF by an individual through Form 19 and by a nominee or legal heir (in case of a deceased EPF member) through Form 20. The settlement of claims is immediate without any waiting period in cases of retirement after age 55 years, termination of services on retrenchment, termination on VRS, termination on account of total and permanent incapacity due to bodily or mental ailments and migration from India for a permanent settlement abroad.”
Closing balance: This is the sum of all the entries—the opening balance plus interest accrued on the opening balance and on the contributions made in the financial year just gone by plus the contributions made in that period. Advances an employee may have taken would be deducted from this amount. This closing balance would then become the opening balance for the next financial year.
Track EPF balance online
An employee can also check EPF balance online. S/he will require the EPFO office name where the account is maintained. The employee will also need his/her PF account number and other details such as name and mobile number. Once the details are entered, the employee will receive your balance enquiry through an SMS on the number provided.
The EPFO has been constructed with a vision to safeguard the rights of employees. If an employee has any complaint, s/he can register his/her complaint online through Employees Provident Fund Internet Grievance Management System (EPFiGMS).
Are there any penalty charges if a company forgets to make payments for a certain period?
For belated remittances of contributions, administrative/inspection charges interest at the rate of 12% on such remittances for the period of delay is to be remitted.
How to withdraw money from EPF?
If one has to withdraw money from the EPF account, then one has apply in advance for some admissible purposes or resign or retire from the company for settlement of PF in Form-19. According to Be Money Aware a financial blog, “One can withdraw only after a waiting period of two months after resigning. The rules are that an employee should not be in employment for two months after resigning if he has to withdraw his PF amount.”
Mr Khanna adds, “Also withdrawals can be made for certain specified purposes such as purchase of site for construction of house, construction of house, purchase of dwelling flats etc. Most of these would be allowed only if the individual has had five years of membership with the fund and has certain limits on the amount can be withdrawn subject to certain documentary support as required.”
He points out that there are certain cases where advances may also be allowed from the fund – for e.g. one could take an advance from the fund towards a repayment of loan taken from a government body, as long as the membership with the fund is for more than 10 years. Once again certain documents may be required to support the details of the loan and the outstanding amount. Similarly there are other scenarios under which an advance may be permissible subject to certain conditions such as an advance for illness, marriage, abnormal conditions such as a natural calamity etc.
Can an NRI contribute to EPF?
No, an NRI cannot contribute to EPF. Employee Provident Fund is implemented by the EPFO of India. It is applicable to employees working in India for Indian firm.