- What is EPF?
- Benefits of EPF
- EPF eligibility criteria
- Contributions of employees and employers towards EPF
- Must Know features about EPF Contributions
- EPF Applicability
- How to disburse EPF online?
- EPF Withdrawal Rules
- Interest rates on EPF
- How to claim EPF? Which EPF claim forms to use?
- UMANG App
- Limitations of EPF
- Employee Provident Fund Organization (EPFO) Contact Details
What is EPF?
The EPF is an avenue for saving and was introduced under the Employees’ Provident Fund and Miscellaneous Act, 1952. The EPF is managed by a Central Board of Trustees which consists of a representative from the Government, the employers, and the employees. This board of trustees is helped in its work by the Employees Provident Fund Organization (EPFO) which works under the jurisdiction of the Ministry of Labor and Employment. The main objective of the EPF or the Employee Provident Fund is to create a corpus that will be helpful after the retirement of your employees.
EPF is known to enjoy EEE status. EEE status is commonly referred to as exempt-exempt-exempt status of EPF. The contributions made by employees are tax-deductible under Section 80C, the interest that they earn via EPF is also interest-free. And lastly, the maturity benefits of EPF is also tax free. EPF is responsible for promoting savings among salaried individuals. The funds deposited into EPF are contributed by both the employer and the employees regularly. These funds can be used in case of the employees being unable to work or after their retirement.
The Employee Provident Fund (EPF) schemes are administered by mainly three Acts i.e.
- Employees’ Provident Fund Scheme, 1952
- Employees’ Pension Scheme, 1995
- Employees’ Deposit Linked Insurance Scheme, 1976
The Employee Provident Fund is an ideal savings tool by which employees can save a considerable amount from their salary every month. This amount would be of great help to the employees in the future either after retirement or due to being unable to work.
Benefits of Employee Provident Fund
Some of the major benefits and advantages of the Employee Provident fund can be mentioned below.
- Under Section 80C of the Income Tax Act, 1961 the contributors to the EPF can avail of the benefits of tax deductions.
- According to Section 10(11) and Section 10(12) of the Income Tax Act, 1961 the contribution which has been made by the employer is also eligible for tax exemption.
- There is no tax levied on the maturity amount.
- The interest which is earned on the savings of EPF is also exempted from Income Tax.
EPF also helps its contributors with loans whenever the necessity arises.
EPF Eligibility Criteria
The basic eligibility criteria to become a member of an EPF are mentioned below.
In general, the employees of an organization are directly eligible for obtaining the benefits of Provident Fund, Insurance, and Pension schemes as soon as they join the organization.
As an employer, you must open an EPF account for employees if their basic salary and dearness allowance amounts to less than Rs. 15,000.
For employees who receive a basic salary plus the dearness allowance more than Rs. 15,000, they can also become a member of the EPF. They can do so by getting consent from you and the Assistant Commissioner of PF.
Those organizations which have employee strength of 20 or more than 20 employees are mandated for registration under the EPF scheme. However, those organizations which have employees less than 20 can voluntarily register under the EPF.
The EPF scheme is not applicable for people who are residing in Jammu and Kashmir.
Contributions of employees and employers towards EPF
An employer and employee both make EPF contributions in the form of a particular part of the salary. This contribution is done every month and the contribution rate depends on the basic salary and the dearness allowance of an employee.
We can state the rate of EPF contribution by both employers and employees in the below-mentioned table.
Must know features about EPF Contributions
1. Rate of Contribution:
a) Generally, the rate of contribution by employees is fixed at 12% but for some exceptional cases, the rate of contribution is 10% like:
i. Those organizations which have employee strength of a maximum of 19 persons have a contribution rate of 10%
ii. Those organizations which have an annual loss which is much more as compared to that of the net value of the organization has a contribution rate of 10%
iii. Industries such as coir, guar, beedi, brick, gum, jute, etc. have been allowed for an employee contribution of 10% towards the EPF
iv. Some industries which have been declared as sick industries by the BIFR have their rate of employee contribution towards EPF as 10%
v. Certain organizations operate under a wage limit of Rs. 6500 and the employees of these organizations can contribute 10% of their salary towards EPF.
b) As said earlier, employers will contribute 12% of the salary into EPF i.e. 12% of Rs. 15,000 which is Rs. 1800. So, both employers and employees will contribute Rs. 1800 in a month towards EPF.
2. Contribution distribution
a) For the Employee
The total percentage of salary which is contributed by the employee goes completely into the employee’s provident fund.
b) For the Employer
The 12% contribution which is being made by the employer includes a contribution of 3.67% towards EPF (Employee Provident Fund) and 8.33% towards the EPS (Employee Pension Scheme).
3. Total Employer Contribution
Some contributions are made towards the administration cost to the EDLI and the EPF at the rate of 1.1% and 0.01%. These contributions are also made by the employer. So, the employer contributes to a total of 13.61% of the salary towards the EPF scheme.
We can illustrate the entire procedure of EPF contribution by both employer and employee by an example.
For example, the monthly salary of Mr. Kumar is Rs. 40,000 in a month. Then, the contributions which are made into the EPF can be summarized as below.
1.Contribution by employee=12% of Rs. 40,000=Rs. 4,800
2.Contribution made by employer towards EPF=3.67% of Rs. 40,000=Rs. 1,468
3.Contribution made by employer towards EPS=8.33% of Rs. 40,000=Rs. 3,332
4.Total contribution=Rs. 9600
Hence, a contribution of Rs. 9600 is made from the salary of Mr. Kumar towards EPF.
As an employer, you would have to contribute to EPF on the Basic salary along with the DA component. An organization much match the contribution of an employee and an extra 1% contribution towards EDLI (0.5%) and EPF plus EDLI administrative charges (0.5%). Your contribution towards EPF changes slightly depending on the number of employees that you have.
- More than 20 employees
The employee’s share in such conditions is 12% and as an employer, you must contribute 3.67% as EPF, 8.33% as EPS, 0.5% as EDLI and 0.5% as EPF+EDLI administrative charges.
- Less than 20 employees
- The employee’s share in such cases is 10% and as an employer, you must contribute 1.67% as EPF, 8.33% as EPS, 0.5% as EDLI and 0.5% as EPF+EDLI administrative charges.
How to disburse EPF online?
The procedure involved in the disbursal of the Employee Provident Fund payment by online means consists of the below-mentioned steps.
Employees can file for a pay EPF online claim by visiting the EPFO portal. For a pay EPF online claim, employee’s UAN (Universal Account Number) must be activated. Also, their bank details and the KYC details must be present in the EPFO portal.
It is your responsibility to provide employees with UAN and mention the same in the salary slip. If employees have not received their UAN, they can obtain it from the EPFO portal itself. They can select the tab Know your UAN status. Then they will have to fill in their details and a PIN obtained by employees on their phone number. With this, they can easily obtain their UAN. Even after they have received their UAN, the UAN needs to be activated.
For making their UAN active, employees must visit the ‘For Employees’ in the EPFO portal. Next, they will have to select the option ‘Our Services’ and under ‘Our Services’ and they will have the option of ‘Member UAN/Online Services’. Then, they will be directed towards the UAN portal where they will have to select ‘Activate your UAN’ option. Employees will obtain a PIN on their mobile number and they can use that PIN for the final step. With this, their UAN would be activated and they can apply for the disbursal of EPF online.
The steps that are involved in filing an online claim for the withdrawal of the EPF online are listed below.
- First, your employees would have to log in to the EPFO portal with the help of their activated UAN and password.
- In the next step, they will have to select the ‘Manage’ tab and verify the KYC details.
- Now, they can visit the tab titled ‘Our Services’ and then select the option ‘Claim’.
- Then, they will be directed to a section which is titled as ‘I want to apply for’ and choose their required type of approval i.e. full or partial or pension withdrawal.
- After the selection of the type of withdrawal, your PF disbursal request will be forwarded to you for approval.
- After your approval, employees will obtain their money within 10 days of raising the claim.
EPF withdrawal rules
Your employees can choose to withdraw their EPF contributions under certain conditions while adhering to some rules. Here are some of them.
1. Home Loan
Employees can choose to withdraw up to 90% of their contributions to pay off home loans. They must complete at least three years of service to avail the same.
If an employee remains unemployed for more than a month, they can withdraw up to 75% of their EPF.
Employees can withdraw up to 50% of their EPF funds for their marriage, provided they have completed 7 years of service.
The current rules allow employees to withdraw their EPF if they do not have a job after two months of the completion of the previous job. And to avail of this benefit, the subscriber must have worked for at least 10 years.
A recent modification of the rules offers more flexibility for employees. Employees can now withdraw up to 75% of their EPF fund value if they do not have a job for more than a month. This change was introduced to help employees take care of their financial needs at such times.
You may also read: Employee loans – The complete guide
Interest rates on EPF
The interest rate on EPF for the financial year 2018-19 is 8.65%. It has been raised from 8.55% which was the interest rate in the year 2017-18. The fund which is accumulated in the Provident Fund Account is capable of attracting some interest which is completely exempted from tax.
The entire interest which is earned is transferred to EPF Account of employees and this is calculated based on the rate of interest that has been determined by the Government of India along with the Central Board of Trustees.
Let us understand some important aspects related to the interest rate on EPF.
- The rate of interest i.e. 8.65 is valid for those EPF deposits which are being made in the financial year of April 2018 to March 2019.
- The interest is transferred to the employee’s EPF account once in a year i.e. on 31st March of the current financial year.
- For further calculation of interest, the interest which has been transferred to the employee’s EPF Account is summed up with the next month’s balance i.e. the balance of April.
- For the inoperative accounts of non-retired employees, interest is offered.
- For the inoperative accounts of retired employees, interest is not being offered.
- The inoperative accounts earn interest and this interest is taxable under the current income tax slab.
- When you contribute to the Employee Pension Scheme (EPS), employees will not be obtaining any interest. But they are eligible to obtain a pension of that specified amount after the age of 58 years.
- For EPF, the interest is calculated monthly whereas the interest rate is announced every year. The interest rate can be calculated by division of the interest rate in a year by 12. By this, the interest amount which has to be given to you in a month is derived.
Understand with an example:
Let us consider an example to illustrate the entire concept of interest rates on the Employee Provident Fund.
For example, an employee has started making their contribution to EPF by November 2018. Now, let us note down some of the important points related to the interest on EPF.
- The interest rate which applies to the EPF is 8.65%
- Now, the monthly rate of interest can be calculated as 8.65/12=0.7208%
- Every month, they are transferring 12% of Rs. 15000= Rs. 1800 towards the Employee Provident Fund Account.
- This amount of Rs. 1800 will be transferred into their Employee Provident Fund Account at the end of every month.
- Now, the contribution made by you is also Rs. 1800 which is divided into
- 3.67% is contributed towards the employee’s EPF Account
- 8.33% is contributed towards the employee’s EPS Account
- The total contribution made towards EPF Account is Rs. 1800 +3.67% of Rs. 1800=Rs. 1800 + Rs.
So, now the balance which has been carried forward from November 2018= Rs. 2350
The interest which is earned for December 2018=0.7208% of Rs. 2350= Rs. 16.938
Balance at the end of the month December 2018= Rs. 2350 + Rs. 2350=Rs. 4700
How to claim EPF ? Which EPF claim forms to use?
An EPF Form is necessary for performing any activity on the EPF Account. These activities can consist of
- Registration for opening an EPF Account
- Withdrawal from the EPF Account
- Availing a loan against the EPF Account
- Transfer of the Employee Provident Fund
There are several EPF Claim forms available and some of them can be listed below.
The government of India has introduced the UMANG app as a unified platform to access various government-based services. The app offers several e-governance services that you can access and avail of. You can use the app to file income taxes, apply for Aadhar, clarify your queries related to provident fund and avail several central governments, state government or local bodies services.
Limitations of EPF
There is no doubt that EPF is a great tool for saving for the future for your employees. However, it has its limitations as well. For example, irrespective of the contributions one cannot reach the magical number of INR 1 crore. Since it allows employees to withdraw funds, a lot of them choose to do so while changing their jobs. Thus, getting back to square one. Also, if you withdraw your EPF before the completion of five years, you must pay taxes on them as well.
Employee Provident Fund Organization (EPFO) Contact Details
In case of any details needed or doubts you can easily contact the Customer Support Cell of EPFO.
The Helpdesk number which can be contacted for queries is 1800118005. Visit the EPFO website for more details.
Moreover, the official address of EPFO for contact is: Bhavishya Nidhi Bhawan, 14, Bhikalji Cama Place, New Delhi-110066