Employees Provident Fund (EPF) is a statutory retirement benefits scheme under the Employees Provident Funds and Miscellaneous Provisions Act, 1952. The Employees Provident Fund Organization (EPFO) administers the EPF scheme. Organizations across the formal sector with an employee strength of 20 or more get mandatorily covered by the Employee Provident Fund scheme provisions.Read more
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EPF is a widespread scheme. Let us explore its various features and benefits to understand what makes it so popular.
EPF is a post-retirement benefit scheme for ensuring a secured future for salaried employees.
Under EPF Scheme 1952, both the employer and employee have to provide an equal monthly contribution at the rate of 12% of the basic salary plus dearness allowance (10% in certain cases).
Out of this, 8.33% of the employer's EPF contribution is towards the Employee Pension Scheme.
The employer contributes a fixed percentage of the basic salary (including DA) towards the EPF on or before every month's due date. For most entities, the EPF contribution rate is 12%.
10% EPF rate is applicable for:
A company with employees less than 20 employees
An industrial company declared as ‘sick’ by the Board for Industrial and Financial Reconstruction
An enterprise that has accumulated losses equal to or exceeding its entire net worth at the end of any financial year
Enterprises in the jute, beedi, brick, coir, and guar gum sector
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The current EPF interest rate for the fiscal year 2020–21 is 8.5% p.a. The interest on EPF gets calculated every month along with interest earned credited to the EPF account every year. The interest corpus is made available to the employee post-retirement or when they leave the employment on fulfilment of certain conditions.
To receive EPF benefits, you must fulfil the following criteria:
A formal sector organization with 20 or more employees must mandatorily register with the EPFO.
Organizations having less than 20 employees can register with the EPFO voluntarily.
All salaried employees are eligible for EPF.
Employees earning less than Rs. 15,000 have to register to the EPF scheme mandatorily.
Employees making more than Rs. 15,000 can voluntarily opt for the EPF scheme.
The EPF scheme is applicable across all states of India except Jammu and Kashmir.
The employee can avail of the accumulated EPF corpus at the time of retirement or when leaving the service, provided the requisite criteria get fulfilled. In the case of deceased employees, their dependents can avail themselves of EPF benefits.
Different EPF forms must be filled while undertaking various activities, including registration, withdrawal, transfer of EPF, and availing of loans.
These are some key EPF forms:
|Form 31||EPF Withdrawal|
|Form 14||Purchase of LIC policy from EPF account|
|Form 13||EPF Account Transfer|
|Form 2||EPF Declaration and nomination form|
|Form 19||EPF Final Settlement to the employee|
|Form 20||EPF Final settlement to the nominee in case of death of the employee|
|Form 5||New employee registering for EPF scheme|
|Form 11||Auto transfer of EPF|
As per the new EPF Withdrawal Rules 2021, key EPF withdrawal pointers are:
EPF amount can be fully withdrawn only on retirement. Early retirement is when the person has crossed 55 years.
Partial withdrawal of EPF is permitted only when there is a medical emergency, house construction/purchase, or for higher education.
90% of EPF corpus can be withdrawn one year before retirement.
Employees can withdraw the EPF corpus if they remain unemployed before retirement due to lockdown or retrenchment.
Only 75% of the EPF amount can be withdrawn after one month of unemployment. The remaining amount gets transferred to the new EPF account when the individual finds employment again.
Note: Employer approval is not required for withdrawing EPF funds. Employees can get online approval by linking their UAN and Aadhaar to their EPF account.
Some key benefits of the Employees Provident Fund are:
An EPF account holder can get loans against their EPF account balance. The said loan has to be repaid within 3 years from the date of disbursal. Interest on the loan is charged at a minimal rate of 1% p.a. for any financial emergency.
The EPFO provides the Employees Deposit Linked Insurance (EFLI) scheme to EPF holders upon joining. There is no insurance premium to be paid by the EPF account holder for the death cover. The maximum free insurance eligible for employees is currently capped at Rs. 7 lakhs.
As per the EPFO’s rules, one can withdraw up to 90% of the EPF balance for purchasing or constructing a new home.
EPFO rules allow for partial withdrawal of funds during a financial emergency.
An EPF holder is eligible for pension post-retirement. However, they should have contributed monthly PF for a minimum of 15 years towards their EPF account.
An employee’s EPF contribution is not taxable. The employer’s contribution becomes taxable if it exceeds RS. 7.5 lakhs in a financial year.
Note: The tax benefit is subject to changes in tax laws.
In summation, the Indian government launched the EPF as a post-retirement scheme to promote savings among salaried employees and help them accumulate a substantial retirement corpus.
EPF allows for loans to be taken against the balance, which is tax-exemptible. It provides pension benefits and financial cover for insurance and emergencies.
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