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All you need to know about Employees’ Provident Fund

All you need to know about Employees’ Provident Fund

We know about the term “Employees ‘Provident Fund’ but only few of us are aware of its modus operandi. This article will try to provide an insight into the EPF and help you with any queries you may have about EPF.

The Employees’ Provident Fund is governed by The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Tell us more.

Yes.  The Employees’ Provident Fund is governed by The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 which extends to whole of India except the state of Jammu and Kashmir.

There are three schemes that run under the Act.

SchemeDescription
The Employees’ Provident Funds Scheme 1952 (EPF)
The Fund acts as a corpus i.e. the Accumulations plus interest are available on retirement, resignation and partial withdrawals for specific expenses.
The Employees’ Pension Scheme, 1995 (EPS)
Employees’ Pension Scheme (EPS) of 1995 offers pension on disablement, widow pension, and pension for nominees.
The Employees’ Deposit Linked Insurance Scheme, 1976 (EDLI)

Under the EDLI scheme life insurance cover is provided to the PF members. The cost of the scheme is borne by the employer but as the amount of life coverage under this statutory scheme is very low (a maximum amount of Rs. 60,000), usually employers opt out of the EDLI scheme by going for group insurance scheme which usually provides higher coverage to employees without any increase in cost to the employer.

These schemes are administered by The Employees’ Provident Fund Organization (abbreviated to EPFO), statutory body of the Government of India under the Ministry of Labour and Employment.

What are the contributions to be made to the schemes by the employee and employer?

Salary limit

Basic SalaryContribution
Upto Rs 15000 (before Sep 1 2014, Rs 6500)Compulsory contribution
Above Rs 15000Optional to become member of the Provident Fund

Note: The wage ceiling of Rs 15000 is not applicable to international workers.

Calculation

EPF, EPS and EDLIS are calculated on Basic salary, Dearness allowance (DA), cash value of food concession and retaining allowances if any. Most of the organizations follow Basic+ DA Method.

Contribution

The rates of contributions are presented below:

Scheme NameEmployee contributionEmployer contribution
Employee provident fund12% (10% in specified cases). Employee can contribute more. The excess is referred to As Voluntary Provident Fund.3.67 Total is 12%
Employees’ Pension scheme08.33
Employees Deposit linked insurance00.5% (capped at a maximum of Rs 15,000)
EPF Administrative charges00.85% (From Jan 2015)
PF Admin account1.1% (Min Rs 500)
EDLIS Administrative charges00.01%( Min Rs 200)

What is the interest on the PF accumulations?

The EPF interest rate of India is decided by the central government with the consultation of Central Board of trustees. In the past several decades, the interest rate has ranged from 8-12 % of the balances maintained in the fund.  The EPF interest rate notification is available on the official website of EPF India on an annual basis.

Compound interest as declared by Central Govt. is paid on the amount standing to the credit of an employee as on 1st April every year.

Can I withdraw the amount from the fund? What happens to the fund at the time of job change?

EPF scheme

PurposePermitted Withdrawal
Specific Purposes like marriage/illness/higher education/house constructionPartial withdrawal permitted
Job changeLegally you should transfer your EPF account to the new company. However you can withdraw amount based on certain criteria.
We recommend that you transfer your PF account as the period of time one spends in his current job gets added to the period of time that one will spend in the next job. The period is important because once five years are completed; any withdrawal later on is tax free.
ResignationEntire withdrawal permitted after a cooling period of two months of unemployment.

Recent news
Vide notification dated February 10, 2016 (tightening PF withdrawal norms), this two months period is relaxed for woman who quit their job for getting married, pregnancy or childbirths.
The same notification restricted the withdrawal of employer contribution before 58 years. Following initial protests from workers, the Ministry deferred the implementation of the rules from April 1, 2016 to May 1.

However, on April 19, 2016, it has been announced that the notification (tightening PF withdrawal norms) will be kept in abeyance for three months till July 31, 2016
Retirement Withdrawal upto 90% at any time after attaining retirement age or within one year before his actual retirement whichever is later .
Full withdrawal on retirement from service after attaining the retirement age.
Full withdrawal on voluntary retirement.

EPS

In case of EPS, if the service period is less than 10 years, you’ve option to either withdraw your corpus or get it transferred by obtaining a ‘Scheme Certificate’. Once, the service period crosses 10 years, the withdrawal option ceases.

In case of international workers, only those employees covered by a social security agreement (SSA) will be eligible for withdrawal benefit under the EPS, 1995, who have not rendered the eligible service (i.e. 10 years) even after including the totalisation benefit if any as may be provided in the said agreement. In all other cases of IWs not covered under SSA, withdrawal benefit will not be available.

What are the tax implications on PF contributions, interest earned and withdrawals under Income Tax Act, 1961?

HeadDescription
Employer ContributionExempt upto 12% of Salary. Thus Contribution made by employer exceeding 12% shall be added to employee’s salary Income.
Employee ContributionDeduction available under Sec 80C
Interest accumulatedExempt upto 9.5%. Interest exceeding 9.5% shall be added to employee’s Salary Income.
Repayment of sum on retirement, resignation or terminationWithdrawal before 5 years
All your previous years income gets recomputed as if the fund was unrecognized from the very beginning (i.e., the tax benefits you received on your own contribution u/s 80C/88 in earlier years will get forfeited)
The employer contribution and interest received will be added to your current income subject to relief under section 89.
Tax deducted at source (TDS) at 10 per cent from Jun 1 2015 (34% in case of NO PAN) in case payment is or is more than Rs 30,000

Withdrawal after 5 years
If you withdraw after 5 years of total contribution to EPF(which includes multiple jobs) then your EPF withdrawal becomes tax free. Show it as exempt income in Income tax return
Recent news:
The Budget 2016 proposed making 60% of employee contribution EPF corpus taxable for contributions after 1.4.2016 but the same has been rolled back.

What is UAN?

Till Oct 2014 every employee had a Provident Fund (PF) account number which was associated with the employer. Change of job meant another Provident Fund number. To overcome this problem, UAN concept was introduced to link multiple Member Identification Numbers (Member Id) allotted to a single member by different establishments under single Universal Account Number.

UAN stands for Universal Account Number. The member can view details of all the Member Identification Numbers (Member Id) linked to UAN on UAN driven member portal. If a member is already allotted Universal Account Number (UAN) then he / she is required to provide the same on joining new establishment to enable the employer to in-turn mark the new allotted Member Identification Number (Member Id) to the already allotted Universal Identification Number (UAN).

Member has to activate his registration to avail various facilities such as UAN card download, member passbook download, updation of KYC information, listing all his member ids to UAN, file and view transfer claim.

What are the requirements for India Outbound employees regarding fund contributions?

India has signed bilateral agreement, known as Social Security Agreement (SSA) with many countries with a view to obtaining exemption from contribution towards social security in the host countries for outbound employees, provided that they contribute to social security in India. To obtain this exemption, an outbound employee requires a Certificate of Coverage (COC) from EPFO which serves as a proof of social security contribution in India.

On January 20, 2016, EPFO has released consolidated guidelines to be uniformly applied by the various PF field offices across the country for securing compliances with regard to Indian outbound employees proceeding to work in a foreign country.


Country

Whether Certificate of Coverage has been obtained

Compliances during foreign deputation
 
Remarks
SSAYesCompliance with EPFOEPFO compliance to continue during the detachment period
PF contribution shall be required to be made on the same salary which was paid immediately before proceeding to the foreign country by the employee

Compliance with social security system of host country
Exempted from enrolment on production of COC for the duration indicated in the COC
SSANoCompliance with EPFOEmployer will be required to report compliance if any Indian salary is paid or payable during the period by the employer whether in or outside IndiaEmployer shall be required to make PF contribution and undertake compliance only if any Indian salary is paid or payable by the Indian establishment.

Compliance with social security system of host country
Employee to be governed as per law of the host country
Non -SSANoCompliance with EPFO
Employer will be required to report compliance if any Indian salary is paid or payable during the period
Employer shall be required to make PF contribution and undertake compliance only if any Indian salary is paid or payable by the Indian establishment.

Compliance with social security system of host country
Employee to be governed as per law of the host country

What will happen to inoperative PF accounts?

Inoperative EPF accounts are those that have not received any contribution from employees or employers for 36 months. A decision to stop the payment of interest to such accounts was taken in 2011 in order to dissuade workers from making their accounts inactive and encourage them from merging them with an active one.

A move to review earlier decision comes in the backdrop of new EPF rules introduced in February, 2016 that bar employees from withdrawing their entire PF amount till they turn 58. Now from April 1, 2016, these inoperative accounts will start earning interest prospectively.

How to check your EPF balance?

You can check your EPF balance through following ways:

  • Check PF balance through UAN
  • Download PF passbook through UAN
  • Download PF passbook through member portal
  • EPF missed call service
  • EPF mobile App
  • EPF balance by SMS 
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