EMPLOYEE PROVIDENT FUND (EPF)

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EMPLOYEE PROVIDENT FUND (EPF)

  • Assigned UAN (Universal Account Number), managed by EPFO.
  • Covers every establishment if more than 20 people are employed.
  • Contribution paid by the employer is 12% of basic wages plus dearness allowance.
  • Equal contribution is paid by the employees also.
  • Anyone above 54 can withdraw 90% of balance with interest.
  • If anyone is employed for more than 60 days can withdraw the whole amount.
  • Contribution by employee can avail tax benefits under section 80C.
  • Employee paying more than the employee to the EPF is called the Voluntary PF.
  • Total contribution till 1.5 lakhs can avail tax benefit under section 80 C.
  • Power of Compounding - Tax free interest and Tax free money.
  • Rate of interest - 8.1% (2022)

CONDITIONS FOR AN EMPLOYER

  • If an employer has more than 20 employees then it is mandatory for that employer to join the EPF scheme.
  • If an employer has less than 20 employees then it is optional for an employer to join the EPF scheme or not.

CONDITIONS FOR AN EMPLOYEE

  • If the salary (Basic + DA) of an employee is less than or equal to INR 15,000/- per month, then it is mandatory for that employee to join the EPF Scheme
  • If the salary (Basic + DA) of an employee is more than INR 15,000/- per month, then it is optional for that employee to join the EPF Scheme. However, employer offer the benefit to every employee.

BENEFITS OF EPF SCHEME

  • Rate of Interest – 8.1% (as of 2022)
  • Tax Free interest.
  • Compounding on the interest i.e., interest on interest.
  • Equal contribution by the Employer also.
  • Tax free retirement fund.
  • Tax free pension
  • Risk free investment.
  • Tax benefit under Section 80C, up to INR 1.5 Lakhs.

COMPOSITION OF EPF SCHEME

EPF scheme is composed of the three schemes:

  1. Employee Provident Fund (EPF)
  2. Employee Pension Scheme (EPS)
  3. Employee Direct Linked Insurance Scheme (EDLI)
Employee Provident Fund:
  • Wealth Creation Fund.
  • This is the money that you get after your retirement.
  • 8.1% interest is applicable on this fund.
  • 90% of the amount can be withdrawn at the age of 57.
  • Tax Free Retirement Fund.
Employee Provident Fund:
  • Contribution in this scheme is by the Employer only.
  • Employer contributes 8.33% of the basic salary in this scheme.
  • Maximum contribution by employer is capped to INR 1250/- per month.
  • Minimum pension after retirement is INR 1000/- per month.
  • Maximum pension after retirement is INR 7500/- per month.
  • Maximum pension after retirement is INR 7500/- per month.
  • Pension will be tax free.
Employee Direct Linked Insurance Scheme:
  • Contribution in this scheme is by the Employer only.
  • Contribution by employer is 0.5% in addition to the equal amount contribution.
  • This is EPF member Insurance Scheme.
  • Minimum Insurance amount is INR 2.5 Lakhs.
  • Maximum Insurance amount is INR 7.5 Lakhs

CONTRIBUTION BY EMPLOYEE (only in EPF scheme)

  1. For companies with more than 20 employees, contribution is 12% of Basic salary.
  2. All 12% of Basic salary goes into the Employee Provident Fund Scheme.
  3. Interest on contribution by employee in EPF scheme – 8.1% (as per 2022).

CONTRIBUTION BY AN EMPLOYER​

  1. Employer (for no. of employees > 20) also contributes 12% of the basic salary of an employee but the distribution of 12% is:
    • a. 8.33% in Employee Pension Scheme
    • b. 3.67% in Employee Provident Fund
  2. Maximum allowable contribution in Employee Pension Scheme (EPS) is INR 1250/- per month.
  3. Additional amount of Employee Pension Scheme (EPS) goes to the Employee Provident Fund (EPF).
  4. Employer (for no. of employees < 20) and employee both contribute 12=0% of the basic salary of an employee. However, the distribution will remain same.

TAXES & INTEREST

  1. Interest rate – 8.1% (as per 2022)
  2. Interest will be tax free, if withdrawn after 5 years.
  3. EPF comes in EEE (Exempt, Exempt, Exempt) category i.e.
    • Tax free Pension.
    • Tax free Retirement Fund.
    • Tax free Interest.
  4. Tax benefit under section 80C up to INR 1.5 Lakhs per annum.
  5. If voluntary contribution (VPF) and 12% contribution exceeds 2.5 lakhs per annum, then the additional amount over 2.5 Lakhs will be taxable.

WITHDRAWAL

  1. Full amount of Employee Provident Fund scheme can be withdrawn after retirement.
  2. Pension after retirement only if an employee has contributed regularly for more than 10 years.
  3. If you are unemployed for more than 2 months, then you can withdraw your EPF.
  4. If you withdraw before 5 years of contribution, then the withdrawal amount will be taxable.
  5. Advances can also be taken for certain reasons without repayment.
  6. All the reasons are listed in the withdrawal page in EPFO online account.

EPFO ONLINE SERVICES

  1. UAN (Universal Account Number) – Unique code for each EPF account.
  2. UAN gives you online access for all EPFO services.
  3. You can check passbook, apply for withdrawal, transfer your PF from one employer to your new employer etc. online using UAN.

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