Employee Provident Fund (EPF) Scheme Details:
What is EPF?
Employees Provident Fund (EPF) is a retirement scheme for salaried employees. It is one type of social security scheme for salaried employees after retirement. EPF is a defined benefit based retirement scheme in which a fraction of Employee’s salary will be contributed to his EPF account and his employer will have co-contribute the equal amount for the social security of the employee also.
EPF was started by EPFO (Employees Provident Fund Organisation) in 1952 AD. At that time, EPF was the only scheme for salaried people to save theirs after retirement life.
Main Aim of EPF:-
The main aim of EPFO is to help salaried employees to save their retirement life and to provide monthly pension throughout an employee’s retirement life.
How does EPF work?
EPF account will be opened for you by the employer when you join an organisation. EPF amount i.e. 12% of Basic pay + DA will be deducted monthly from your gross salary and contributed to your EPF account every month. The employer will make the same 12% contributions into your EPF account also. Total contribution will earn interest as per the interest rate (%) announced by the Government of India from time to time. You can withdraw the entire accumulated amount (100 %) from your EPF account at the time of Retirement and you will receive a monthly pension from Employees Provident Fund Organisation (EPFO) throughout your life. After death, the amount of monthly pension will be given to your spouse followed by 2 children up to their 25 years of age.
Features of EPF:
- Your money is 100% safe.
- Guaranteed returns.
- Pension scheme for salaried employees.
- Income tax benefits.
- Equal contribution from the employer.
- Free life insurance cover up to Rs. 6 Lakhs
- Monthly pension after retirement.
- Partial withdrawal facility for important life events.
- Your old age of life is secure.
Income Tax Benefits:
Employee Provident Fund employee’s contribution amount is eligible for tax deduction under section 80C of the Income Tax Act. The eligible limit in a financial year is Rs. 1,50,000.00. Employees Contribution of 12% of Basic + DA is exempted from tax. All interest amount is tax-free up to rate 9.5 % per annum and above interest rate 9.5%, it will be added to employees annual income and taxed under “Income from Source”
PF withdrawn amount will be completely tax-free if under the following circumstances:-
PF withdrawal amount is 100 % tax-free. If,
*Employee leaves the job before 5 years of service due to ill health or dis-continuation of employer’s business or reasons beyond the control of the employee.
*Employee leaves the job after 5 years of the service period. To compute 5 years of service, the service provided with the previous employer should also be considered.
*Employee changes the jobs and the PF balance amount with the previous employer is transferred to the new employer’s PF account.
PF Withdrawal amount will be taxed in the following manner in case of withdrawal before 5 years of service:-
*Employee’s contribution will be taxed as “Income from Salary”
*The interest earned on employee’s total contribution will be taxed as “Income from other sources”
*Employer’s contribution and interest will be taxed to the employee as “Income from salary”
Monthly pension from EPS after retirement is taxable and it will be considered under “Income from Salary” and it will be taxed as per your income tax slab also.
EPFO (Employees Provident Fund Organisation):
EPFO is a body of the Indian Government and governs the operations of the EPF scheme.
How much salary for EPF?
EPF salary means Basic + DA (Dearness Allowance)
Salary = Basic Pay + DA
There are 3 components of EPF account:
- EPF (Employee Provident Fund)
- EPS (Employee Pension Scheme)
- EDLIS (Employees Deposit Linked Insurance Scheme)
When the employer opens the EPF account, the employee is automatically enrolled in EPF, EPS and EDLIS.
In this account, the employee contributes 12% of Basic pay + DA and the employer contributes 3.67 of Basic Pay + DA in every month. Both Employee and employer contributions will earn interest as per the interest rate announced by the Government from time to time. This scheme earns yearly compounded interest. it means the interest on contributions will be calculated every month in a financial year (from April to March) and it gets credited to the account in April of next Financial year. An employee can withdraw 100 % accumulated amount at retirement.
In this account, the Government provides a monthly pension to his employees after retirement. Employees do not contribute any type of amount towards this scheme. The Employer contributes 8.33% of basic + DA every month. The amount of EPS does not earn any interest.
This account provides life insurance cover to employees a maximum of Rs. 6 Lakhs. The total cost is borne by the employer. The employer should pay 0.5% of monthly Basic Pay+ DA every month (to a maximum of 0.5% of Rs. 15,000.00) towards the premium of the life insurance. The employees are covered under this scheme from the first day of joining. The life insurance coverage of an employee is purely based on his Basic pay + DA. When an employee dies during working hours or non-working hours then Life insurance cover is irrespective.
The Insurance amount will be 30 times of average of last 12 months Basic Pay + DA. In addition, there will be Rs. 1.5 lakh as a bonus also.
Formula = [(Average last 12 months BAsic + DA) x 30] + 150000.00
The nominee or legal heirs may claim this insurance amount following the death of the employee.
EPF Interest Rate:
The current annual interest rate is 7.6 % and it is the period from April 2020 to March 2021. The interest rate of the PF account is not fixed. It is determined by the Indian Government from time to time.
Both employee and employer contributions will earn interest as per the EPF scheme Act. But employer contribution towards EPS account will not earn any interest.
Compounding frequency of PF account is a yearly basis. It means that interest on contributions will be calculated every month in a financial year and they will have to get credited to the account in April of the next financial year.
Admin Charges for EPF Account:
Admin charges of PF account are paid by the employer. The employer will pay 0.85 % of Basic Pay + DA every month towards PF account Admin Charges and 0.01% of Basic pay + Da every month towards EDLIS admin charges.
About VPF :
VPF stands for “Voluntary Provident Fund” is an additional contribution facility for employees. Employees can contribute more than the compulsory 12% of Basic Pay + DA every month. But the employer will not match additional contribution by an employee. The Income Tax benefits on VPF will be same as that of the EPF only. No additional benefits for VPF.
What is UAN?
UAN means Universal Account Number. Till October 2014, PF Account number was issued to the employees by his employer. If you change your job, then you used to get a new PF Account number. Many employees have changed their job frequently, therefore they will be faced problem for maintaining multiple account numbers. Few employees will have to forget to withdraw or transfer the PF amount. To address these issues, EPFO came up with UAN (Universal Account Number) concept. UAN no. is only one account no. even if you change your job multiple times. When you change your job, then you should provide your UAN no. to a new employer. Then, your all account details/amount will come with one centre.
The list of following benefits covers under UAN account no. :-
- You can view and download/print your latest EPF passbook.
- You can download and print your UAN card.
- You can view and update your profile periodically.
- You can lodge and view transfer claims.
- You can update KYC (Know your customer) details.
You can access your UAN no. at website https://unifiedportal-mem.epfindia.gov.in/memberinterface/
How to check EPF balance?
There are many ways to check your EPF balance as mentioned below:
- EPF Mobile App
- EPF balance by SMS/missed call
- EPF Passbook
- UAN Number
- Annual statement
EPF Android App
In the year 2015, the EPFO has launched an android app in Playstore of Google name as “m-epf”. You can download this app through this link m-epf Android App
You can activate your UAN no. through this App and you can check your PF balance, pension status and much more.
EPF Balance by SMS/missed call
You can check your balance through SMS and this facility was introduced from July 2011 onwards. SMS format is EPFOHO<UAN><LAN> to 7738299899 And you can check through a miss call from your registered mobile no to 01122901406.
UAN Activated Members may know their latest PF contribution and balance available
with EPFO by sending an SMS at 7738299899 from registered mobile number.
“EPFOHO UAN” to 7738299899.
The facility is available in English (default) and Hindi, Punjabi, Gujarati, Marathi, Kannada, Telugu, Tamil, Malayalam and Bengali.
For receiving the SMS in any of the languages other than English, the first three characters of the preferred language need to be added after UAN.
For example, to receive in SMS in Telugu then SMS to be sent will be
“EPFOHO UAN TEL” to 7738299899.
*SMS should be sent from the registered mobile number of UAN.
*EPFO sends last PF contribution and balance details of the member along
with available KYC information.
*The facility is available in 10 (ten) languages.
EPFO has launched online passbook facility in 2012. To view your EPF account passbook status, you need to register online at https://passbook.epfindia.gov.in/MemberPassBook/Login.
You can register using your mobile number, and one of the identification proof like PAN card, Aadhar card, Bank account, Passport or Voter card also. Once you have completed the registration process then you can log in and view your account details any time.
You can view your EPF passbook online when already have activated your UAN number.
EPFO (Employees Provident Fund Organisation) sends an annual statement in every financial year to the employee through his employer. This statement contains the following details:-
- Employee contribution
- Employer contribution
- Opening balance of the beginning of the financial year.
- The interest rate for the financial year
- Interest earned amount
- The closing balance to the end of the financial year.
Partial withdrawal from EPF:-
Employees can partially withdraw from PF account for the bellow reasons:-
- Medical Treatment
- Purchase of Flat or house
- Purchase of site
- Education of child
- Improvements, additions, alteration in the house for the first time
- Additions, Alterations, Improvements, Repairs in the house for the second time
- Natural Disasters
- Just a year before retirement
- Withdraw at the age of 55 years
- Repay loan taken for the purchase of house or site or construction of a house.
The details of each of the above withdrawals are explained below:-
The employee can get advance from EPF fund for the marriage of himself, son, daughter, brother or sister. You should have complete at least 7 years of membership with EPF. The eligible advance amount is 50 % of employee’s total contribution with interest. This withdrawal is only 3 times during his/her entire service period. The employee should submit the Marriage invitation card as proof to get the advance amount.
Employee can choose this option for the advance from EPF account for the medical treatment of himself or family members including spouse, children, dependent parents, and dependent parent in-laws in case of female employees.
You can opt for the advance from EPF fund for one of the following reasons:-
- Hospitalisation more than a month
- Major surgery operations
- Major Diseases like T.B., Cancer, heart disease, etc.
The eligible amount in advance will be 6 times of monthly Basic pay + DA or total of employee’s total contribution with interest, which is lower. The employee can withdraw this facility for any time during his/her service period.
Purchase of Flat or house
Employees can opt for this withdrawal for the purpose of Purchase of Flat or house. This facility only for the employee and his/her family living in the house. It is not for rented purposes. The employee can withdrawal amount will be 36 times of monthly Basic pay + DA or total of employee and employer contribution with interest or total cost of purchase or construction of the house, which is lower.
The employee should have complete at least 5 years of continuous service to get this withdrawal. The employee can withdraw only once during his entire service for this purpose. The owner of this house should be the name of the employee or employee’s spouse or jointly. If the amount withdrawn is not utilised due to various issues, then the employee must deposit the entire withdrawn amount back to his/her EPF account without fail.
Purchase of site
The employee should have complete at least 5 years of membership with EPF to get this withdrawal. The eligible withdrawal amount is 24 times of monthly Basic + DA or total contributions of employee and employer with interest or total cost of the site, which is lower. This facility is for once in the entire service period.
The site should be in the name of the employee or employee’s spouse or jointly. You can not opt for this withdrawal if he/she wants to purchase a site jointly with someone other than spouse. If the amount spent is lesser than the amount withdrawn, then you can deposit the excess amount back into the EPF account within 30 days from the purchase of site. If the amount withdrawn is not utilised due to various issues, then the employee must deposit the entire withdrawn amount back to his/her EPF account without fail.
Education of child
You can get advance for the post matriculation education of son or daughter. Employee should have complete at least 7 years of membership with EPF. The eligible advance amount is 50 % of employee’s total contribution with interest. This withdrawal is only 3 times during his/her entire service period. The employee should submit a copy of fees to be paid to the educational institution as proof to get the amount.
Improvements, additions, alteration in the house for the first time
It is allowed only after 5 years from the date of purchase or construction of the house. The eligible withdrawal amount is 12 times of monthly basic + DA or employee’s own contributions with interest or the actual cost towards alterations, whichever is lower. This facility is for once in the entire service period. If the amount spent is lesser than the amount withdrawn, then you can deposit the excess amount back into the EPF account within 30 days from the alterations done at house. If the amount withdrawn is not utilised due to various issues, then the employee must deposit the entire withdrawn amount back to his/her EPF account without fail.
Additions, Alterations, Improvements, Repairs in the house for the second time
It is allowed only after 10 years from the date of first withdrawal. The eligible withdrawal amount is 12 times of monthly Basic Pay + DA or employee’s own contributions with interest or the actual cost towards alterations, whichever is lower. This facility is for once in the entire service period. If the amount spent is lesser than the withdrawn amount, then you can deposit the excess amount back into the EPF account within 30 days from the alterations done at house and If the withdrawn amount is not utilised due to various issues, then the employee must deposit the entire withdrawn amount back to his/her EPF account without fail.
An employee can get advance amount if his property is damaged due to natural disasters like floods, earthquake, etc. The eligible advance amount is 5000.00 or 50% of employee’s total contribution with interest, whichever is lower. No required minimum service period for this withdrawal.
Just a year before retirement
In this opt, up to 90% of the total balance in PF account after 54 years of age or within 1 year before retirement, which is later. Here does not require any eligibility criteria. This facility is only once in his entire service period.
Withdraw at the age of 55 years
At the age of 55 years, an employee can withdraw 90% of the balance (Employee contribution, Employer contribution and interest earned on both) in PF account for the purpose of investing in “LIC Varishtha Pension Bima Scheme” to get a monthly pension
Repay loan taken for the purchase of house or site or construction of a house.
Employees can opt for this withdrawal to repay the loan amount taken for the purchase of site or house or flat or construction of the house. To get this facility, you should have a complete minimum of 10 years of membership with EPF fund. This facility is for once in the entire service period. The eligible withdrawal amount is 36 times of monthly Basic Pay + DA or total of employee and employer contributions with interest or the remaining loan amount, whichever is lower.
Other some special cases: –
Due to the following reasons, an employee can withdraw his EPF account in some special cases:-
- An employee has losses his job due to company closed more than 15 days/without compensation from employer/does not receive a salary for regular 2 months or more.
- If Job dismissed by Employer then employee has been challenged in court and case is pending.
- If the company is closed for 6 months and more. In this case, the employee can withdraw 100% of employee’s total contribution with interest.
Full Withdrawal Rules from EPF
An employee can withdraw his entire balance from PF account due to the following situations:
- Employee opts for VRS (Voluntary Retirement Scheme)
- Employee’s job has terminated by the employer.
- Employee has settled as permanently in foreign country or employment reasons.
- Due to permanent disability of employee, and unable to work.
- Superannuation from service after reaching the age of 55 years.
- Employee has surrendered his membership of EPF.
In case of death of an employee, then-nominee/nominees can claim the following benefits:
- Death before Retirement:
Total accumulated amount in PF account (Employee contribution with interest and employer contribution with interest). This will lump sum amount. The amount of insurance coverage by EDLIS account. Monthly pension under EPS account.
2. Death after Retirement:
Under the EPS scheme, monthly pension to spouse and 2 children below 25 years of age.
PF withdrawal process:
Recently, the Government has introduced the UAN. This is a simple process for withdrawal from PF. After activating your UAN no., then you can submit the withdrawal request directly to EPFO office. This process to withdraw from EPF without the employer’s signature or involvement also.
When an employee reaches 58 years of age and has completed 10 years of service, then the employee is eligible for a pension. This scheme is only after retirement. No pension for an employee before the age of 50 years. In this scheme, an employee will get monthly pension throughout his life. After death, the monthly pension will pay to a spouse followed by 2 children up to the age of 25 years. No pension for an employee before the age of 50 years.
Changing of Jobs:
Many employees withdraw his/her PF amount when they change their jobs, note that it is an illegal activity. An employee can withdraw the amount from PF account only if he/she is not in employment for 2 months or the employee is moving overseas for settlement. Hence, it should be transferred PF amount to your new employer when you have changed your job.
When does an employee get a Pension ?
An employee gets a pension under EPS in the below-mentioned situations:
An Employee who have completed 10 years of service and retires at the age of 58 years.
Employees who have completed 10 years of service and retires between the age of 50 years and 58 years. If retiring before 58 years, 4% of the monthly pension will be deducted for every year falling short of 58 years. Employee should not be in service to receive the pension.
If an employee of 56 years of age opts for reduced pension and his/her calculated pension amount is Rs.1000/-, then his/her reduced pension will be Rs.921.60. It is calculated as follows:
1000 x (0.04) = 40
Reduced pension = 1000-40=960
960 x (0.04) = 38.4
Reduced pension = 960 – 38.4 = 921.60
How to calculate monthly Pension?
Monthly pension calculation is on the basis of joining of employees before and after 15th Nov 1995. 2 (two) methods:-
Employees joined before 15th Nov 1995:
This is calculated based on “Past Service Pension” and “Pensionable Salary Pension” components. Also, this pension is a part of “Family Pension Scheme”(FPS).
Employees joined after 15th Nov 1995:
This pension calculation is as follows:
Monthly Pension = (Pensionable Salary x Pensionable Service)/70
Under EPS scheme the minimum pension is Rs. 1000/-. This minimum monthly pension benefit was announced by the Government in the financial year 2014-15.
Maximum pension for employee can get under this scheme is calculated as follows:
Maximum Pension = (15000 x 35) / 70 = Rs. 7500.00
This facility is most important for employees. A nomination is required to settle the benefits in case of death of the employee. Employees can nominate either at the time of joining EPF or thereafter and change any time in his/her service period. Employees can nominate his/her spouse, children, dependent parents and expired son’s widow and children.
An employee who does not have family can nominate any person. However, this will become invalid once the employee gets married and acquired his/her family. Employee can choose multiple people for nominee but after clearly mention the percentage of share and total share should not exceed 100 per cent.
Note that employee can not nominate brother or sister.