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Do acronyms like PF, EPF, Provident Fund, or Employees Provident Fund leave you scratching your head???
You are not the only one!
But fear not, because we are here to break it all down EPF for you in this blog.
Understanding EPF is important for anyone working in India, whether you are an employee or an employer. It is all about planning for your financial future and ensuring security during retirement.
Think of it like hitting three bullseyes with one bullet:
First off, by regularly putting money into your EPF account, you’re building up wealth for your golden years.
Then, there’s the pension aspect. When you finally decide to kick back and retire, your EPF savings can provide you with a steady income to keep the good times rolling. And last but not least, there’s the peace of mind of knowing that your loved ones are taken care of.
And all of this you can manage your EPF account and do other things related to it online through the official portal.
In this blog, we’ll cover everything you need to know about EPFO (Employee Provident Fund Organization). First off, we’ll explain what EPFO is and the different schemes it offers. We’ll talk about who can avail of EPF (Employee Provident Fund) and how it operates, including tax savings and the interest you can earn. Then, we’ll dive into the perks of EPF for both employees and employers, like tax benefits.
But First, understand what is Employee Provident Fund or EPF.
What is Employee Provident Fund or EPF?
Employee’s Provident Fund is a retirement savings scheme available to all salaried employees in India, administered by the Employee’s Provident Fund Organisation (EPFO), which operates under the Ministry of Labour and Employment, Government of India. Introduced in 1952, EPF aims to offer financial security to employees after retirement by requiring both the employer and the employee to contribute 12% of the employee’s basic salary and dearness allowance to the fund each month. This combined contribution allows employees to accumulate a significant savings corpus over their working years.
In addition to securing retirement, EPF offers multiple benefits, including tax exemptions, insurance coverage and a pension. The interest on EPF deposits currently stands at 8.15% per annum, providing a higher return rate than many other traditional saving schemes. Notably, interest accrued on EPF is tax free and withdrawals made upon retirement are also exempt from taxes, making it a popular tax saving instrument. Through its systematic monthly contributions and tax advantages, EPF serves as a dependable means for employees to build a retirement corpus while enjoying benefits throughout their employment.
Benefits of EPF
EPF isn’t just about saving money, it’s about securing your future. It helps you save for retirement, provides a security for emergencies, and even offers tax benefits. Let’s talk about how EPF can make your life easier.
- Retirement Savings: EPF helps build a retirement fund with contributions from both the employee and employer, offering financial security in old age.
- Emergency Fund: EPF serves as a safety net for unexpected expenses or emergencies, providing easy access to funds when needed.
- Tax Benefits: Contributions to EPF qualify for tax deductions, while the interest earned is also tax-free, offering savings up to Rs. 1.5 lakh annually.
- Flexible Withdrawals: Members can partially withdraw funds for various purposes like education, housing, weddings, or medical expenses.
- Financial Protection: EPF offers security during unemployment, disability, or death, providing support to employees and their families during tough times.
- Pension and Insurance: Besides the provident fund, employers contribute to the employee's pension and may also offer life insurance coverage.
- Easy Access: Through the Universal Account Number (UAN), members can manage their EPF accounts online, facilitating easy access and account transfers when changing jobs.
UAN and EPFO Portal
EPFO, or the Employees’ Provident Fund Organization, allows all EPF subscribers to manage their PF accounts online. This means they can do things like withdraw money and check their EPF balance without needing to visit a physical office.
To make this process easier, EPFO assigns each member a 12-digit number called a Universal Account Number (UAN). This number stays the same even if the employee changes jobs. So, whenever someone switches employers, their new PF account is linked to the same UAN.
The UAN makes it simple for members to access the EPFO portal online. However, to use these online services, employees need to activate their UAN first.
EPFO Schemes: EPF, EPS, and EDLI
Let’s understand the three schemes offered under EPFO to better understand the calculation of the entire calculation:
- Employees’ Deposit Linked Insurance Scheme 1976 (EDLI): The Employees' Deposit Linked Insurance Scheme, or EDLI, is like an insurance policy provided by the EPFO (Employee Provident Fund Organization). If someone covered by this scheme passes away while they're employed, their nominated beneficiary gets a lump sum payment. The good thing is, you don't have to pay extra for this insurance or sign up separately. It's automatically included when you join the EPF scheme.
- Employees’ Pension Scheme 1995 (EPS): The Employee Pension Scheme (EPS) is another program from the same organization that gives pensions to eligible employees. It's for those earning salaries up to Rs.15,000. This scheme is meant to ensure financial security for employees once they retire.
- Employees’ Provident Funds Scheme 1952 (EPF): The Employee Provident Fund (EPF) in India is a retirement savings plan for employees. When you work, a part of your salary, usually 12% of your basic salary, goes into the EPF scheme. Your employer also contributes the same amount. So, a total of 24% of your basic salary is set aside for your retirement.
This money is managed by a fund manager who invests it in the market. You earn interest on this money every year, which is currently around 8.15%.
When you retire, you receive a retirement allowance from this fund. It includes the money you contributed over the years plus the investment income it earned.
The government ensures that these funds are managed properly and protects the rights of employees who have EPF accounts.
Remember, when calculating EPF contributions, only your basic salary and dearness allowance (DA) are considered, not other allowances like HRA or special allowances.But, in most private sector companies, only the basic salary is considered for calculating EPF contributions because they typically don’t include a dearness allowance component.
This ensures a portion of your salary goes towards securing your retirement.
For example, if your monthly basic salary is Rs. 50,000, then:
- Your contribution towards EPF: 12% of Rs. 50,000 = Rs. 6,000
- Employer’s contribution towards EPF: Another 12% of Rs. 50,000 = Rs. 6,000
- Total monthly contribution: Rs. 6,000 (yours) + Rs. 6,000 (employer’s) = Rs. 12,000
So, a total of Rs. 12,000 is deposited into your EPF account every month. This amount earns interest, which is currently at a rate of 8.15% per year, as decided by EPFO.
When you contribute to the Employees’ Provident Fund (EPF), 12% of your salary goes into it. But here’s the twist: the employer’s 12% isn’t all for EPF. It’s divided into two parts. One-third of it, which is about 3.67% of your salary, goes into EPF, and the rest, which is around 8.33%, goes into the Employee Pension Scheme (EPS). However, there’s a cap for EPS contributions, which means only a portion of your salary, up to Rs. 15,000, is considered for calculating EPS contributions.
So, let’s simplify this with some numbers: If you’re earning Rs. 50,000, overall, 24% of it, which is Rs. 12,000, is contributed to these schemes. Out of this, Rs. 10,750 goes to EPF, and Rs. 1,250 goes to EPS.
For a clearer picture:
- You contribute 12% of your Rs. 50,000 salary, which is Rs. 6,000.
- Your employer contributes 3.67% of Rs. 50,000 to EPF, which is Rs. 1,835.
- Then, they put 8.33% of Rs. 15,000 into EPS, which is Rs. 1,250.
- The remaining employer’s contribution, 8.33% of Rs. 35,000, goes back to EPF, amounting to Rs. 2,915.
In total, from your Rs. 50,000 salary, Rs. 10,750 is contributed to EPF, and Rs. 1,250 is contributed to EPS, making up the total of Rs. 12,000 going into these schemes.
Objectives and Initiatives of the Employees’ Provident Fund Organisation (EPFO)
The Employees’ Provident Fund Organisation (EPFO) plays an important role in safeguarding the financial interests of employees across India. Below are the primary objective:
- Who's Covered: If you work in a company with at least 20 employees, you're likely eligible for EPF. Even some smaller companies can offer it if they choose to.
- Salary Matters: If your basic salary is up to Rs. 15,000 per month you have to contribute to EPF. But if you earn more than that you can still join voluntarily.
- Choice is Yours: If you make more than Rs. 15,000 you can decide if you want to sign up for EPF or not as long as you meet certain conditions.
- Government Workers: EPF rules don't apply to government employees, they have their own provident fund scheme.
- International Employees: If you are foreigner working in India and your employer follows EPF rules you might be eligible too.
- Contract Workers: Even if you are on contract you could still get EPF benefits and depending on some conditions set by EPFO.
- Special Cases: Depending on the rules,certain groups,such as apprentices and trainees,might or might not qualify for EPF
EPF Interest Rates
The interest rate for the Employees Provident Fund (EPF) is evaluated annually through discussions with Ministry of Finance by the Central Board of Trustees of Employees Provident Fund Organisation (EPFO). In 2024 EPF interest rate stands at 8.15%. The interest earned on investments in PF online account is not subject to tax.
This interest is credited only to active PF accounts of employees who have not yet retired. However interest earned on these accounts is taxed based on individual’s income tax slab.
It is important to note that portion contributed to Employees’ Pension Scheme (EPS) does not earn any interest. Nevertheless members become eligible to receive pension from this accumulated amount once they reach 58 years of age.
Here are Provident Fund interest rates for past seven years:
| Year | EPF Interest Rate |
|---|---|
|
2016-2017 |
8.65% |
|
2017-2018 |
8.55% |
|
2018-2019 |
8.65% |
|
2019-2020 |
8.65% |
|
2020-2021 |
8.55% |
|
2021-2022 |
8.55% |
|
2022-2023 |
8.15% |
Understanding EPF Interest Calculation
Understanding how interest is calculated on your Employee’s Provident Fund (EPF) can help you better manage your EPF savings.
Here’s summary of the key points about EPF interest rates and calculations.
- Interest on EPF schemes is calculated monthly by dividing annual rate by 12.
- EPF interest rates are reviewed yearly and for the fiscal year 2023-24, it's 8.15%.
- The announced interest rate is applied to monthly balances and the total yearly interest is calculated.
- The new interest rate remains valid from April 1st of one year to March 31st of the next.
- Interest is credited to EPF accounts once a year on March 31st.
- This interest is added to next month's balance for further interest calculation.
- Accounts become dormant if no contributions are made for 36 months but inactive accounts may still earn interest for non-retired employees.
- Retired employee’s inactive accounts don't earn interest.
- Interest earned on dormant accounts is taxed based on member's income slab.
- Contributions to the Employee’s Pension Scheme don't earn interest but pension is provided after 58 years of age.
The table below lays out step-by-step calculation for the EPF interest accrued for an individual with monthly salary of Rs. 50,000 making it easy to follow and understand each component of the calculation.
| Description | Calculation | Amount (₹) |
|---|---|---|
|
Employee's Contribution (12% of Rs. 50,000) |
12% x 50,000 |
6,000 |
|
Employer's Contribution towards EPF (3.67%) |
3.67% x 50,000 |
1,835 |
|
Total Contribution towards EPF Account |
Employee's contribution + Employer's contribution |
7,835 |
|
Monthly Interest Rate |
(8.5 / 12)% |
0.7083%
|
|
Interest Accrued in One Month |
Total contribution x Monthly interest rate |
55.52 |
Employee Provident Fund (EPF) Forms: Purpose and Applicability
EPF forms are like the paperwork you need to get things done with your EPF account, whether it’s signing up, moving money around, or taking out cash. Each form serves a specific purpose, like declaring who gets your EPF money if something happens to you, signing up for EPF when you start a new job, or getting money out for emergencies or retirement. Just fill out the right form for what you need, and you’re good to go!
| Form | Purpose | Applicability |
|---|---|---|
|
Form 2 |
Nominating and declaring |
Applicable to both EPF and EPS
|
|
Form 5 |
Registering |
New employees registering
|
|
Form 5 IF |
Availing claim under EDLI scheme |
- |
|
Form 10C |
Availing of withdrawal benefits or scheme certification |
-
|
|
Form 10D |
Availing monthly pension |
EPS |
|
Form 11 |
Transferring EPF account |
- |
|
Form 13 |
Transferring EPF funds between employers |
- |
|
Form 14 |
Purchasing LIC policy |
- |
|
Form 15G |
Availing tax-saving benefits on interest |
EPF |
|
Form 19 |
Settling employees' provident fund |
EPF |
|
Form 20 |
Settling employees' provident fund in case of death |
EPF |
|
Form 31 |
EPF withdrawal |
EPF |
We have already explored the list of various EPF forms, let’s now focus on two of the most frequently used forms: Form 13 for transferring EPF amount across the employers and Form 31 for EPF withdrawals.
Transfer EPF Funds: Form 13
- Update your UAN: Ensure your Universal Account Number (UAN) is updated with your current employer.
- Log in to EPF Member Portal: Visit the official EPF member portal and complete the registration process if you haven't already.
- Access Online Transfer Claim Portal: Use your login credentials to access the Online Transfer Claim Portal within the EPF member portal.
- Initiate Transfer Request: Navigate to the option for requesting a transfer of funds and provide your previous employment details as required.
- Form 13 Submission: If you're not eligible to transfer without Form 13, fill out Form 13 with your previous employer's details.
- Employer Authentication: Have your previous or current employer authenticate the transfer request.
- Receive PIN: Upon submission, you'll receive a PIN on your registered mobile number for verification.
- Verify and Submit: Enter the received PIN to verify your identity and submit the transfer request.
- Track Application: Keep track of your transfer application using the issued tracking ID provided during the submission process.
Withdraw EPF Funds: Form 31
We will talk about how you can get money from your EPF account when you need it. Whether you prefer doing things the traditional way by visiting the EPFO office or using the EPF online portal, we’ll cover both methods step by step.
Withdraw EPF Funds: Form 31
We will talk about how you can get money from your EPF account when you need it. Whether you prefer doing things the traditional way by visiting the EPFO office or using the EPF online portal, we’ll cover both methods step by step.
Offline EPF Withdrawal Process:
- Fill out either a 'new composite claim form' or a 'composite claim form' to start the withdrawal process.
- Submit the form to the EPFO office in your area.
- Make sure the form is attested by your employer.
Online EPF Withdrawal Process:
- Ensure you have an active Universal Account Number (UAN).
- Make sure your UAN-linked mobile number is active and reachable.
- Verify that your UAN is linked with Aadhaar and that you have your PAN and bank details with the IFSC code handy.
- Log into the UAN online portal & verify your KYC details.
- Follow the provided instructions to finish the withdrawal process smoothly.
But before you jump into the EPF withdrawal process, it’s crucial to understand the criteria and consequences involved.
EPF Withdrawal Rules:
- You can withdraw EPF completely under specific circumstances like retirement, unemployment exceeding two months, or when switching jobs with a gap of over two months.
- Partial withdrawals are allowed for purposes such as weddings, higher education, purchasing land or house construction, home loan repayment, and property renovation.
EPF Taxation:
- Withdrawals made before completing 5 years of employment are taxed.
- EPF investments up to Rs 1.5 lakh per year are tax-deductible under Section 80C of the Income Tax Act for both employer and employee contributions.
- Interest earned on EPF is tax-free as long as you're employed.
- Withdrawals within 5 years of opening the account are tax-free, but TDS may apply if the withdrawal exceeds Rs 50,000.
- PPF investments up to Rs 1.5 lakh per year qualify for tax credits under Section 80C. Interest and maturity amounts are tax-exempt.
Frequently Asked Questions
Q1: Do I need to activate my UAN to transfer my PF online?
Yes, you need to activate your UAN by registering on EPF Member Portal before you can process claims, transfer or withdraw funds online. It’s a straightforward process that you can complete on EPF Member Portal.
Q2: I’ve changed jobs. Do I need a new UAN?
No, your UAN remains the same throughout your career. When you join a new employer, they will create a new PF account linked to your existing UAN.
Q3: Should I withdraw my EPF balance when I switch jobs or transfer it?
It’s recommended to transfer your EPF balance to your new PF account. Withdrawing it before completing five years of service makes it taxable and you’ll need to report it as Income from Other Sources in your ITR. From 1 April 2024, EPFO has automated the transfer of EPF accounts, so your balance including EPS contributions will transfer automatically to your new account.
Q4: Can I withdraw my EPF corpus if I’m currently unemployed?
Yes, if you’re unemployed for one month you can withdraw up to 75% of your EPF balance. After two months of unemployment, you’re eligible to withdraw the remaining 25%.
Q5: Is it mandatory to link Aadhaar with EPF for online services?
Yes, Aadhaar linking is necessary for online EPF services. If you delink Aadhaar from your UAN, online services will not be available. However, if you visit an EPFO office for offline claims, Aadhaar can be linked on the spot for processing.
Q6: Are contributions to my EPF account tax exempt?
Yes, contributions are tax exempt but there are some distinctions. The employer’s contribution isn’t part of your taxable income, making it tax free at the source. Your own contributions are counted in your taxable income but qualify for deductions up to Rs. 1.5 lakh annually under Section 80C. However, if you withdraw before five years of service, both employee and employer contributions become taxable.
Q7: What percentage of my salary is deducted for EPF?
A total of 12% of your basic salary and dearness allowance goes towards your EPF contribution.
Q8: When can I withdraw my EPF amount?
EPF can typically be withdrawn upon retirement or after two months of unemployment. For those unemployed for at least one month, EPFO allows a 75% withdrawal. The remaining 25% can be transferred if you join a new employer.
Q9: If an EPF subscriber passes away, can their family access the funds?
Yes, in the unfortunate event of the subscriber’s death, the nominee or legal heir or a guardian, in the case of a minor can claim the EPF balance. Necessary documents include a Death Certificate and EPF Composite Form and in some cases a Guardian Certificate.
Q10: How do I withdraw my EPF funds online?
To withdraw, ensure your UAN is activated and your mobile number is registered. Log in to the EPF Member Portal, check if your KYC is updated under the manage section and navigate to online services. From there, select ‘Claim’ and follow the steps to complete your withdrawal request.
Q11: Is there an age limit to join EPF?
There’s no age limit to join EPF but employees aged 58 or above cannot participate in the Pension Fund component of EPF.
Q12: For employees paid on a daily or part time basis, how is EPF calculated?
In such cases, the monthly wages are used to calculate the EPF contribution.
Q14: How can I check my EPF balance?
Once your UAN is activated, you can check or download your EPF passbook through the EPF passbook portal.
Q15: How does EPF differ from PPF?
While EPF is for salaried employees with contributions from both employer and employee, PPF is open to any Indian citizen, including self-employed individuals. EPF interest rate is around 8.15%, while PPF offers 7.1%. EPF is employer linked and transferable across jobs, whereas PPF has a fixed 15 year tenure with an option to extend.
Q16: What are the main objectives of EPF?
EPF aims to help employees build a retirement corpus, serve as an emergency fund and provide tax saving benefits on contributions up to Rs. 1.5 lakh under Section 80C.
Q17: If I withdraw a part of my EPF corpus, will I still earn interest on the withdrawn amount?
If you've withdrawn a portion of your EPF corpus, you won’t earn interest on the withdrawn amount. However, the remaining balance in your EPF account will continue to earn interest as usual.
Q18: How is Universal Account Number (UAN) assigned to an employee?
When you join a company with over 20 employees, you automatically become eligible for Employees' Provident Fund (EPF) benefits. The Employees' Provident Fund Organisation (EPFO) assigns you a unique 12-digit Universal Account Number (UAN). This UAN is permanent and links all your Provident Fund (PF) accounts, even if you change jobs. To use online services on the EPF portal, you must link your UAN with your Aadhaar and PAN for verification and access.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
