Employee Provident Fund

What is EPF?

The Employees' Provident Fund (EPF) is administered by the Employees' Provident Fund Organisation (EPFO), a social security agency operating under the Government of India's Ministry of Labour and Employment. It is a type of pension plan that helps salaried employees safeguard their retirement.

As per the scheme, both the employer and employee contribute 12% of the employee's Basic Pay and Dearness Allowance (DA). 

The employee's entire 12% contribution is directed to their individual EPF account. From the employer's 12% contribution:

• 3.67% is allocated to the employee's EPF account
• The remaining 8.33% goes into the Employee Pension Scheme (EPS) account

The EPF account is designed to provide a monthly pension after retirement. This scheme collectively ensures that salaried employees accumulate a substantial lump sum for their retirement planning, supplemented by a future pension.

EPF Contribution

know that typically the employer contributes 12% of the basic salary (including DA) towards the EPF.

10% EPF rate is applicable for:

• A company with less than 20 employees.
• An industrial company declared '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 sectors.

EPF Interest Calculation

EPF interest is calculated each month on your running balance. To do this, your yearly interest rate is divided by 12. Let's break it down step-by-step for better understanding:

For example,

Annual EPF Interest Rate: 8.25%

Monthly Interest Rate: 8.25 ÷ 12 = 0.6875% (approx)

Monthly EPF Contribution (Employee + Employer): ₹1,567

This monthly percentage is applied to the opening balance of your EPF account for that month, meaning the amount that was already in your account from the previous month.

1. Month 1 (April):

   • Opening Balance: ₹0
   • Contribution for April: ₹1,567
   • Interest Earned for April: ₹0 (No interest in the month of contribution)
   • Closing Balance: ₹1,567

2. Month 2 (May):

   • Opening Balance: ₹1,567 (April's closing balance)
   • Contribution for May: ₹1,567
   • Interest Earned for May: ₹1,567 × 0.6875% = ₹10.77 (rounded)
   • Closing Balance: ₹1,567 + ₹1,567 + ₹10.77 = ₹3,144.7

3. Month 3 (June):

   • Opening Balance: ₹3,144.77 (May's closing balance)
   • Contribution for June: ₹1,567
   • Interest Earned for June: ₹3,144.77 × 0.6875% = ₹21.61 (rounded)
   • Closing Balance: ₹3,144.77 + ₹1,567 + ₹21.61 = ₹4,733.38

   Note: While calculated monthly, the total interest earned over the whole year is added to your account once, at the end of the financial year. Each month, the balance grows through both new contributions and earned interest, resulting in compounding growth.

   You can use the EPF calculator, an online tool that helps you estimate how much money you'll accumulate in your EPF account by the time you retire.

EPF Money Transfer

Go through the following steps to understand how you can easily transfer EPF money: 

Step 1: Visit the official EPF member portal and complete the registration form.

Step 2: Once you have your login details, sign in.

Step 3: Go to the Online Transfer Claim Portal and initiate an EPF transfer using your login.

Step 4: If eligible for online transfer, you can complete the claim without submitting Form 13.

Step 5: Select 'Request for Transfer of Funds' and enter your previous employment information as prompted.

Step 6: Have your old or new employer authenticate your request.

Step 7: After submitting your details, a PIN will be sent to your mobile.

Step 8: Track your application status using the provided tracking ID.

EPF Eligibility Criteria

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 for 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.

EPF Claim

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 EPF benefits.

Key EPF Forms

Different EPF forms must be filled out while undertaking various activities, including registration, withdrawal, transfer of EPF, and availing of loans.

These are some key EPF forms:

EPF Withdrawal

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 a person has crossed 55 years.
• EPF amount can be fully withdrawn only on retirement. Early retirement is when the person has crossed 55 years.
• 90% of the EPF corpus can be withdrawn one year before retirement.
• Employees can withdraw the EPF corpus if they remain unemployed before retirement due to the 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.

Key Benefits of EPF

Some key benefits of the Employees Provident Fund are:

1. Allows for loans against EPF

   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.

2. Free insurance

   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.

3. Home loan

   As per the EPFO's rules, one can withdraw up to 90% of the EPF balance for purchasing or constructing a new home.

4. Partial EPF withdrawal during an emergency

   EPFO rules allow partial withdrawal of funds during a financial emergency.

5. Pension benefits

   An EPF holder is eligible for a pension post-retirement. However, they should have contributed monthly PF for a minimum of 15 years towards their EPF account.

6. Exemption from TDS

   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.

In Conclusion

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 builds a significant retirement corpus with a joint contribution of both employees and employers.
EPF allows loans to be taken against the balance, which is tax-exempt. It provides pension benefits and financial cover for insurance and emergencies.