What is the Employees Provident Fund (EPF)?
Employee Provident Fund (EPF) is a retirement savings scheme introduced by the Government of India for the benefit of employees. In this blog post, we will discuss the importance of EPF for employees and employers, the eligibility criteria, contributions, benefits, and comparison with other retirement savings schemes.
What is EPF?
Employee Provident Fund is applicable to employees working in the organised sector and provides a lump sum amount to employees on their retirement or upon their family member’s death.
Employee PF is a defined PF contribution of employee scheme, which means that the amount of money that you receive at retirement will depend on the amount of money that you have contributed over the years, as well as the interest earned on your contributions.
It was introduced in 1952 and has evolved over the years to become an important financial instrument for both employees and employers. The scheme is managed by the Employees Provident Fund Organisation (EPFO), which oversees the contributions, withdrawals, transfers, and grievances.
The Employees’ Provident Fund and Miscellaneous Provisions Act 1952 applies to the factories engaged in industries specified in Schedule I of the EPF Act or to other establishments notified and engaging 20 or more employees.
About EPFO (Employee Provident Fund Organisation)
EPFO in India is one of the world’s largest social security organisations in terms of clientele and the volume of financial transactions undertaken.
The Employees’ Provident Fund Organisation (EPFO), is a statutory body under the Ministry of Labour and Employment in India.
The Employees’ Provident Fund Organization (EPFO) provides the EPF scheme to employees working in the organised sector. The employer and employee contribute 12% of the basic salary towards the employee’s EPF account. Employees can also choose to contribute more than 12% towards their accounts, but the employer’s contribution remains the same.
EPFO Online Services
EPFO India offers a number of EPF online services that allow you to manage your EPF India account. These employee centric services include:
- Check your EPF balance
- View your EPF passbook
- Transfer your EPF account
- Apply for a EPF withdrawal
- Update your EPF details
To use the EPFO’s online services, you will need to create an account on the EPFO’s website. Once you have created an account, you will be able to log in to your account and use the Employee PF online services.
Schemes Offered Under the EPFO
Given below are the various schemes that are present under the EPFO:
- Employees’ Provident Funds Scheme 1952 (EPF): The EPF is a savings scheme that requires both the employer and the employee to contribute a portion of the employee’s salary to the fund. The contribution to the provident fund is calculated as a percentage of the employee’s basic salary and dearness allowance. The employer’s contribution is 12% of the employee’s basic salary and dearness allowance, while the employee’s contribution is 12% of their basic salary and dearness allowance.
- Employees’ Pension Scheme 1995 (EPS): The EPS is a pension scheme that provides a monthly pension to the employee after retirement. The contribution to the scheme is also calculated as a percentage of the employee’s basic salary and dearness allowance. The employer contributes 8.33% of the employee’s basic salary and dearness allowance towards the EPS, subject to a maximum of Rs. 1,250 per month. The remaining 3.67% is contributed to the EPFS.
- Employees’ Deposit Linked Insurance Scheme 1976 (EDLI): The EDLI is a life insurance scheme that provides a lump sum payment to the nominee in case of the employee’s death while in service. The employer pays a premium for the insurance cover, which is calculated as a percentage of the employee’s basic salary and dearness allowance.
Contributions Under EPF
The employee contributes 12% of their basic salary and dearness allowance (DA), while the employer contributes an equal amount. For employees earning less than INR 15,000 per month, the employer’s contribution is limited to 12% of their salary. Employee PF India contributions are made on a monthly basis, and timely contributions are essential for earning interest on the Employee PF account. The interest rate is decided by the Government of India every year, and it is currently at 8.25%.
The accrued interest on Employee Provident Fund of India is tax-free and can be withdrawn without paying for the same. Employees avail of a lump-sum amount on their retirement, which is inclusive of the accrued interest.
Timely contributions to the scheme are crucial to ensure that the employee’s retirement savings grow at a steady pace. The nomination and withdrawal processes for Employee PF are relatively straightforward, and employees can withdraw funds for specific purposes, such as buying a house or paying for medical treatment.
Eligibility for EPF Accounts
To be eligible for an account, an employee must be:
- Working for an establishment that has at least 20 employees
- Earning a basic salary of up to Rs 15,000 per month (minimum limit can vary for certain categories of employees)
- Between 18 and 60 years of age
Exceptions to the above EPF eligibility criteria include:
- Employees of establishments with less than 20 employees can also opt for voluntary Employee PF India membership.
- Employees who were previously ineligible but now earn above the threshold limit can also join Employee PF in India.
EPFO Benefits for Employees
There are many employees provident fund benefits, such as retirement savings, insurance, and loans.Here are a few key benefits for employees:
- Retirement Benefits: It ensures that employees have a retirement fund when they retire. The employees provident fund scheme accumulates a corpus over time, which can be used by the employee after retirement.
- Tax Benefits: It provides tax benefits to employees under Section 80C of the Income Tax Act. Contributions made to the scheme are eligible for a tax deduction of up to Rs.1.5 lakh per annum.
- Loan Facility: Employees can avail of a loan against their EPF balance in case of an emergency.
- Insurance Benefits: Employees who have been a part of the Employee PF India scheme for a minimum of one year are eligible for life insurance coverage of up to Rs.6 lakh.
- Employees can withdraw their EPF savings after retirement, resignation, or in case of financial emergencies
Benefits for Employers
Employee PFs offer EPF benefits to employers as well. Here are some benefits for employers:
- Tax Implications: Contributions made by the employee towards EPF are eligible for tax deduction under Section 80C of the Income Tax Act. Additionally, interest earned on Employee PF is also tax-free.
- Attractive to Employees: Offering EPF to employees makes the company more attractive to potential candidates.
- Compliance: Employers are required to comply with EPF regulations, which ensures that they maintain a fair and transparent work environment.
How to Calculate the EPF Balance?
The EPF fund calculation formula involves the following components:
- Basic Salary: It is the fixed salary that an employee receives every month without any allowances or deductions.
- Dearness Allowance (DA): It is the cost of living adjustment allowance paid to employees as a percentage of their basic salary to offset inflationary trends.
- Employee Contribution: Employees contribute 12% of their basic salary and DA towards their EPFO account every month.
- PF Contribution of Employer: Employers also contribute an equal amount, which is 12% of the employee’s basic salary and DA, towards the EPF account.
- Interest Rate: The EPF rate of interest in India is determined by the government and is subject to change from time to time.
The formula for calculating the Employee PF balance is:
EPF balance = (Employee contribution + Employer contribution) x Interest rate/12 x number of months
For example, let’s assume that an employee has a basic salary of ₹20,000 per month, and the DA is 10% of the basic salary. Therefore, the total salary of the employee would be ₹22,000 (₹20,000 + ₹2,000).
The employee contributes 12% of the basic salary and DA towards the Employee Provident Fund account, which amounts to ₹2,640 (₹20,000 x 12% + ₹2,000 x 12%).
The employer also contributes an equal amount, which is ₹2,640.
Assuming the current interest rate is 8%, the balance after one year would be:
EPF balance = (₹2,640 + ₹2,640) x 8%/12 x 12 = ₹5,280 x 0.67 = ₹3,542.4
Therefore, after one year, the employee’s EPF balance would be ₹3,542.4
How to Check EPF Balance?
Checking your Employee Provident Fund balance regularly is important to keep track of your retirement savings. Here are some ways to check your balance:
- EPF Online: Visit the official EPFO India website and log in using your UAN (Universal Account Number) and password to check your balance.
- Missed Call: You can give a missed call to 011-22901406 from your registered mobile number to get your balance details.
- SMS: Send an SMS to 7738299899 with your UAN and EPFO office code to get your balance.
EPF vs Other Retirement Savings Schemes
- EPF is often compared to other popular retirement savings schemes such as National Pension Scheme (NPS) and Public Provident Fund (PPF).
- While EPF offers a fixed interest rate and is suitable for short to medium-term savings, NPS and PPF are better options for long-term savings as they offer higher EPF interest rates and tax benefits.
- EPF is a low-risk investment, and the returns are guaranteed by the Government of India. In contrast, NPS and PPF offer higher returns but are subject to market risks.
- EPF has the advantage of being mandatory for certain categories of employees, whereas NPS and PPF are voluntary schemes. It also offers better returns than PPF, while NPS has the advantage of being more flexible and having more investment options.
EPF vs PPF
Public Provident Fund (PPF) is another popular investment scheme in India that offers long-term savings options. EPF and PPF have similarities and differences in terms of eligibility, contributions, and tax benefits. While EPF is mandatory for certain employees, PPF is open to all citizens. PPF has a longer lock-in period than EPF, but offers higher interest rates.
PPF offers a higher interest rate compared to EPF and is suitable for long-term savings. However, EPF offers insurance and loans, which PPF does not offer. When it comes to choosing between EPF and PPF, it depends on individual preferences and goals. While EPF is suitable for short to medium-term savings, PPF is better suited for long-term savings.
| Retirement Savings Scheme | Advantages | Disadvantages |
| EPF | Tax benefits, Fixed returns, Long-term savings | Fixed asset allocation, Withdrawal restrictions |
| National Pension System (NPS) | Tax benefits, Flexibility in investment options | Low returns |
| Public Provident Fund (PPF) | Tax benefits, Long-term savings | Low returns, Withdrawal restrictions |
| Mutual Funds | High returns, Flexibility in investment options | Market risks |
Withdrawing from EPF Account
EPF allows employees to withdraw their accumulated funds for various reasons, including:
- Retirement
- Death of the member
- Permanent disablement of the member
- Medical expenses
- House purchase
- Education of children
- Unemployment
To withdraw money from your EPF account, you will need to apply to EPFO. You will need to provide the EPFO with a valid reason for your withdrawal, as well as supporting documents.
Things to Know About EPF Withdrawal
Here are some things you should know about EPF withdrawal:
- Types of Withdrawals: EPF India allows for three types of withdrawals – full withdrawal, partial withdrawal, and advance withdrawal.
- Tax Implications: Withdrawals made before completing 5 years of service are taxable, and the amount withdrawn is added to the employee’s income for that financial year.
- Conditions for withdrawal: Employees can withdraw the EPF amount after completing five years of service or if they have been unemployed for more than two months.
- Types of withdrawals: There are three types of withdrawals – partial, full, and advance. Partial withdrawal can be made for specific purposes such as medical emergencies, home purchases, etc. Full withdrawal can be made upon retirement, and advance withdrawal can be made in case of emergencies such as a pandemic or natural disasters.
- Process of withdrawal: Employees can withdraw the amount of Employee PF online via the EPF employee member portal.
- Tax implications of EPF withdrawal: If an employee withdraws the employee provident fund amount before completing five years of service, the amount will be taxable.
Transferring EPF Account
If you change jobs, you can transfer your new PF online account from your previous employer to your new employer. Here’s how to transfer your account:
- Visit the EPFO India member portal.
- Log in with your UAN (Universal Account Number) and password.
- Go to the ‘Online Services’ tab and click on ‘One Member – One EPF Account Transfer Request’.
- Verify your personal and employment details.
- Select the previous employer’s EPF account you want to transfer.
- Submit the transfer request.
Benefits of transferring your account:
- Consolidation of accounts: Transferring your account helps consolidate all your accounts in one place, making it easier to manage your retirement savings.
- No loss of interest: When you transfer your account, your accumulated balance, including interest, is transferred to your new account. You do not lose any money.
- Better service: With a consolidated account, you can benefit from better service and faster claim settlement.
How to Nominate Beneficiary for Your EPF Account?
It is crucial to nominate a beneficiary for your account to ensure that your accumulated savings are transferred to your loved ones in case of your unfortunate demise. Here’s how to nominate a beneficiary for your Employee PF online account:
- Visit the EPFO India member portal.
- Log in with your UAN and password.
- Go to the ‘Manage’ tab and click on ‘Modify Basic Details’.
- Verify your personal and employment details.
- Go to the ‘Family Details’ section and click on ‘Add Family Member’.
- Enter your nominee’s details and save the changes.
Importance of nomination:
- Secure your family’s future: Nomination ensures that your accumulated the employees provident fund savings are transferred to your loved ones, providing financial security in case of your untimely demise.
- No legal disputes: Nomination helps avoid legal disputes among family members over the ownership of the Employee Provident Fund account.
EPF Grievance Redressal
Common grievances related to Employee Provident Fund include delays in the transfer or withdrawal of funds and errors in account details.
If you have any grievances related to your EPF account, you can file a complaint with the EPFO. Here is how to file an EPF grievance:
- Visit the EPFO website and click on ‘EPFiGMS (EPF Grievance Management System)’.
- Register with your UAN and other personal details.
- Select the type of complaint and enter the details.
- Submit the complaint.
EPF Grievance Redressal Mechanism
- Acknowledgement: Once you file a complaint, you will receive an acknowledgement from the EPFO.
- Investigation: The EPFO investigates your complaint and tries to resolve it within 30 days.
- Resolution: Once the investigation is complete, the EPFO provides a resolution to your complaint.
To Wrap It Up…
EPF is an important retirement savings scheme for employees in India. Employers must register for EPF India and contribute regularly, while employees should monitor their account and make timely withdrawals or transfers.
Frequently Asked Questions About EPFs
Yes, it can be withdrawn before retirement in certain circumstances such as medical emergencies or house construction.
In the event of the employee’s death, the funds in the account are distributed to the nominee or legal heir.
As of 12th July 2024, the Employees’ Provident Fund Organisation (EPFO) has set the interest rate at 8.25% for the financial year of 2023–2024.
You can transfer your Employees’ Provident Fund (EPF) account from one job to another through the Employees’ Provident Fund Organisation (EPFO). For eligible members, the EPFO provides an automatic transfer option. Additionally, you can choose to transfer your EPF online.
Under Section 80C, contributions to the Employees’ Provident Fund (EPF) qualify for tax deductions. While EPF withdrawals are generally taxable, they can be exempt under certain conditions. The tax implications differ depending on the components involved, and Tax Deducted at Source (TDS) rates vary based on the nature of the withdrawal.
