Almost every employee of India is aware of the Employee provident fund. Sometimes, It is the biggest saving of employees. This fund is crucial to live a happy retirement life.
As, most of the Indians are not aware of the retirement saving, provident fund fulfils this duty.
Definition of Provident Fund
Provident fund is a retirement saving fund of the salaried employees. It is a mandatory retirement saving which enjoys the tax benefit. It can’t be attached to a default proceeding.
The EPF is a saving scheme for the employees of Government, Public or Private sector Organizations. The scheme is governed by the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. To manage the operation of EPF a statutory body the employees provident fund organisation is formed under the Ministry of Labour and Employment. The EPFO governs three schemes, the Employee provident fund, Employee pension scheme and Employee deposit linked insurance scheme. All the organisation which employ more than 20 people is covered under EPF. It means the employers of such organisation have to adopt these 3 EPF schemes.
Employee Provident Fund
Employee provident scheme is a contributory scheme. The employee deposits a part of his/her salary to this scheme. The employer also contributes in this scheme on behalf of the employee. The contribution is deposited every month. The interest rate of EPF is fixed every year. The interest rate is linked to the 10-year yield of the government bond. The employee get the total PF balance with interest at the time of retirement.
The employee can track and check the EPF balance against his EPF account. Every EPF member is given a UAN number and EPF member ID with first employment. The UAN does not change with the change of job. This portable number helps the employee to transfer the PF balance while changing the job. The PF member ID changes with every job. It is given by the employer.
One can check the PF balance of its account any time. There are many ways to check PF balance. The balance into the PF account belongs to the employee. An employer has no right over it. Employers act as authenticator and facilitator to the employee.
The employee can also withdraw the EPF balance before retirement if he/she remains unemployed for more than 2 months. However the EPF member can’t withdraw 100% of EPF corpus before the retirement age. The employee who is registered with UAN portal can withdraw his EPF amount without any approval of the employer.
This scheme gives lump sum payment at the time of retirement. During the service, one can get loan or partial amount of PF this facility is given for some peculiar circumstances.
The contribution to the EPF account is done on the basis of a formula.
The employee has to contribute his/her 12% salary (basic+DA) towards EPF account. The employer has to match the amount deposited by the employee. But, from the employer’s contribution, Some amount goes for Employee Pension scheme.
The contribution by the employee to the EPF is tax deductible under section 80C of the income tax act. The contribution by the employer is tax exempt. The maturity amount is also tax exempt. These tax benefits are subject to the minimum 5 years of the service. EPF withdrawal before 5 years of continuous service is subject to TDS.
|Contribution Towards EPF (% of salary)|
|Contribution Accounts||Administration Accounts||Total|
|The contributions are statutorily payable up to a prescribed wage ceiling, which is Rs.15,000/- as on date.|
Employee Pension Scheme
The employee Pension scheme runs along the EPF. The contribution to this scheme is fulfilled by the employer. The contribution is 8.33% of the salary (basic+DA). The maximum contribution to the EPS in a year is Rs 15,000.
The employee pension scheme gives pension to the employee after attaining the age of 58. You can take discounted pension after the age of 50. The pension benefit is reduced by 3% for every year falling short of 58.
The pension is calculated on the basis of last pay and duration of service.
In case a person leaves the job before the age of 58, there are three options before him
If the total service is less than 10 years, he/she can withdraw the pension benefit.
If the total service is more than 10 years, he/she can get scheme certificate. The scheme certificate is used once the member gets another job. Otherwise, it will be used to get the pension at the age of 58.
This scheme also gives pension to the family member of a deceased employee.
Employee Deposit Linked Insurance Scheme
This scheme gives lump sum benefit upon the death of a serving employee. The amount is given to the nominee of the employee.
The insurance cover under EDLI is based on a formula. The cover is 30 times of the last drawn salary. Alon with this a bonus of Rs 1.5 lakh is also given. The salary for this calculation can’t go beyond Rs 15,000/month. Hence maximum cover under this scheme is Rs 6 lakh.
Frequently Asked Questions (FAQ)
Q1. Can I opt out of EPF scheme?
Ans. Yes, you can opt out of EPF scheme if your monthly salary (basic+DA) is more than 15,000, but you have to decide it before becoming the member of EPF. Once you become a PF member, you can’t leave it till you are in the job.
Q2. I am not the member of EPF, can I join later?
Ans. Yes you can join EPF any time before the retirement. There is no such restriction.
Q3. My company is very small, It is not part of EPF act. Can I individually become the member of EPF?
Ans. It is not possible without the employer. The contribution towards employer is the must for EPF.
Q4. Do I need to become the member of PF, whenever I join a new company?
Ans. No, Every new employee gets the Universal Account Number. This number is portable and works with any job. You can quote the existing UAN to the new employer. It will make your PF membership portable. The PF balance from the previous company also gets transferred through the UAN.
Q5. Is universal account number necessary for becoming the member of EPF. How can we get it?
Ans. Today, EPFO asks UAN for every interaction with it. EPF membership, transfer, withdrawal and even complaint can’t be lodged without the UAN.
Normally, the EPFO issues UAN for all of the active members. The employers have to distribute this number to its employees. But, an employee can also check its UAN status through the UAN portal. It requires the PF member ID to reveal the UAN.
Besides this one can get UAN even before getting the job. This UAN can be mentioned at the time of joining a job.
Q6. Why should I join the EPF, why not put our retirement saving in other pension schemes?
Ans. The EPF is constituted mainly for the low income worker. This class of worker is not very aware about the retirement saving. This forced saving builds a decent retirement corpus. Therefore, people who earns more than Rs 15000/month are free to opt out of EPF.
However, the terms and condition of EPF make it restricted saving. Because of the restriction, this saving lasts till the retirement. Whereas, other saving can be spent before the retirement. Also, the EPF investment is very secure and cheap saving plan.
Q7. How many years service is required to be eligible to receive member pension?
Ans. Minimum 10 years eligible service will entitle for member pension
Q8. Does pension amount also transfers along with the EPF
Ans. Yes. It gets transferred automatically along with the EPF.
Q. Can a member increase his EPF contribution?
Ans. Yes, an EPF member can increase his EPF contribution up to the 100% of the salary. But an employer is not bound to match the amount beyond 12%. Also, if an employer increases its contribution beyond 12%, the additional amount would be taxable.
Q. My employer is not approving the EPF withdrawal form? How can I get the PF balance?
Ans. If an employer is not signing the EPF withdrawal application. You have two ways to proceed.
- Use the new for of EPF withdrawal and submit it directly to the regional EPF office. For this method, you should have activated UAN and approved KYC.
- Fill the EPF withdrawal form yourself and get it attested from the gazetted office or bank manager.
So, you can get your EPF even without the approval of the employer.