UNDERSTANDING THE EMPLOYEE PROVIDENT FUND

The Employee Provident Fund or EPF is retirement saving wherein an employee accrues a considerable corpus for his retirement years. This was introduced under the Employees Provident Funds Act of 1952 and is administered by the Employees Provident Fund Organisation or EPFO.

Under this scheme, an employee has to pay 12% of the basic salary for EPF contribution, which is automatically added by the employer. As a consequence, at the time of retirement, he gets the total amount contributed by his and the employers’ wage along with interest earned over it. EPF can be considered as a low-risk investment since it is government-managed and the returns accrued are fixed.

Any organization with 20 or more workers is legally liable to open EPF accounts for their workers. A vast number of small organizations do this voluntarily. Any employee who draws a salary up to ₹15,000 per month is compulsorily required to put in their share of EPF. All workers in an organization enjoy EPF facilities, regardless of the quantum drawn. Transferring EPF corpus becomes easier in case of a change of job as the process is simplified through UAN.

WHAT IS EPFO?

Employee Provident Fund Organization or in short EPFO is a statutory body originally constituted in 1951 and falls under the aegis of the Ministry of Labour and Employment, Government of India.

OBJECTIVES OF EPFO

EPFO aims at looking after the welfare of the employees by soliciting savings for retirement. The primary objectives include:

• Savings for retirement by means of EPF.
• Further schemes offer social security such as pension insurance.
• Plans for the monetary stability and savings of employees.

SCHEMES AVAILABLE UNDER EPFO

• Employees’ Provident Fund Scheme 1952, EPF: This scheme mainly works on employee savings during retirement and allows partial withdrawals for reasons such as housing, education, or wedding.
• Employees’ Pension Scheme 1995 (EPS): EPS provides a regular pension to retired employees, the disabled, and the next of kin in case of death of a member.
• Employees’ Deposit Linked Insurance Scheme 1976 (EDLI): On death of a member, this scheme gives financial security to the family. The benefits are generally double the salary of a member, which cannot exceed ₹ 6 lakh.

KEY OBJECTIVES OF EPFO

The two main goals that EPFO aims at are basically to safeguard the interest of working employees and savings. Some of the prominent objectives include:

• High Retirement corpus.
• EPF account of one per employee.
• Ease of compliance procedure.
• EPF claim settlement time was reduced from the current 20 days to 3 days.

EPFO SERVICES

EPFO has provided its members with the following services:

• EPF Passbook: A member may even check the balance of his EPF account by logging into his EPFO’s MEMBER e-SEWA portal with his UAN and password.
• Claim Process: A claimant can make online claims for partial withdrawal and full settlement without having to physically submit forms.
• Claim Status: The status update of his claims will be available on the EPFO portal.
• One Employee – One EPF Account: The facility allows the member to get all his or her balances of the PF account transferred to a new account on changing the job.
• Death Claim Filing by Nominee: Online claim filing by the nominee on the death of the member.
• Online Registration of Establishments: Establishment can register with EPFO online.
• Online Submission of Challan: Employers can submit online challans.
• UMANG App: EPFO services have been made available on the UMANG app.
• Grievance Redressal: EPFO provides grievance portals to the members as well as the companies, through which they can file a complaint and track their status.

TYPES OF EPF FORMS

There are various EPF forms used for claim withdrawal, nomination, etc. Some of the common ones have been enlisted below –

• Form 2: For nomination and declaration.
• Form 5: To add new employees.
• Form 10C: To withdraw benefits or to acquire scheme certificates.
• Form 19: EPF’s Final Settlement Form.

EPF MONTHLY DEPOSIT

Employees and their employers pay into the EPF account the same percentage, primarily 12% of the salary, in addition to dearness and retaining allowances. In some cases, however, the deposit percentage can be flat 10%, especially with companies having fewer than 20 employees or if one’s industries are facing a crunch financially.

And women employees can also put in 8% from their wages during the first three years as an incentive to the employer for employing at the same time with an increase in take-home wages. The employers still contribute 12%.

VOLUNTARY PROVIDENT FUND (VPF)

The VPF is an optional facility by which one can contribute over 12% for their EPF. One can go for up to 100% of basic salary and DA drawn by him, and the interest accrued is the same as on EPF. Employers have no liability to contribute towards VPF.

ELIGIBILITY FOR EPE SCHEME

• Indian Nationals can invest in EPF.
• A lot of employees who are drawing upto ₹15,000 must register for the EPF.
• An organization with more than 20 employees mandatorily needs to get registered, whereas smaller companies can join the scheme even without the compulsion.

BENEFITS OF EPF

General benefits of EPF are as under:

• Sure Shot Returns: Some returns from the government on contributions that are made every year.
• Savings in Taxation: Contributions are considered for tax deductions under Section 80C of the Income Tax Act.
• Retirement Funds: The complete corpus amount is withdrawn by an employee at the time of retirement, that is, 58 years old or apply for the monthly pension.
• Emergency Funds: Partial withdrawals are allowed to be made in the case of emergencies, where up to 90% of the corpus is available.

EPF RATE OF INTEREST

Hitherto, interest on EPF deposits at the rate of 8.25 percent is paid just like VPF. This rate is annually reviewed with a change in government policy.

INTEREST COMPUTATION ON EPF

Interest is compounded month on month, however, credited at year’s end. For example, suppose an employee receives a basic pay of ₹20,000. He will be required to pay ₹2,400 as the employer will add some amount. The interest will be accrued according to the balance every month.

EPF TAX BENEFITS AND TAXATION

All EPF investments come under the head of EEE, which is Exempt, Exempt, Exempt. This means that the contributions, interest earned, and withdrawals are tax-free if the investment is held for five years or more. Withdrawals above ₹50,000 have TDS deducted when taken below five years.

EPF WITHDRAWAL

It can be withdrawn when one attains 58 years of age. Additionally, 90% of the corpus is available for withdrawal one year before retirement. Partial withdrawals are allowed during medical emergencies or house purchase, based on a specific condition that it must have been operational for five years.

ONLINE AS WELL AS OFFLINE WITHDRAWAL

Withdrawal requests, in fact, are available online through the EPFO website with basic details. Offline, one needs to personally visit the EPFO office and submit the Composite Claim form with attestation from the employer; however, a direct submission is possible if all the Aadhaar details are updated.

CONCLUSION

The most prudent tool for retirement savings is, however, the Employee Provident Fund as available to employees during their formative years. With its schemes, its advantages, and a focus on security of finances, EPF remains one of the cornerstones of social security systems in India. It’s from the intricacies of EPF alone that an employee can take informed decisions over his future finances.