The Employee Provident Fund (EPF) is a scheme run by the Employees’ Provident Fund Organization (EPFO), which is aimed at providing social security and retirement benefits. Here’s a brief guide that will help you figure out whether you’re eligible, and how to apply.
What is the eligibility criteria for an employee?
Opening an EPF account compulsory for employees earning a salary of Rs. 15,000 or above, although individuals at any income level can opt for it voluntarily. Employees are required to contribute a minimum of 12% of their salary, with the option to contribute more voluntarily.
What is the rule for PF contribution?
A monthly salary contribution of 12% is made to the Employee Provident Fund (EPF) by both the employee and the employer. Employees are not obligated to match employer contributions of up to 12% of their income, although they are able to do so voluntarily.
EPF contribution percentage
The employer contribution is calculated as 12% of total of the following components - (basic wages + dearness allowance + retaining allowance). An equal contribution is paid by the employee also. If your organization employs less than 20 employees (along with certain other pre-requisites as per the EPFO rules), the contribution rate from both employee and the employer is limited to 10%.
Out of employer’s contribution of 12% or 10% (as the situation stands), 8.33% is directed to Employees’ Pension Scheme. However, it is calculated on Rs 15,000. So, for every employee receiving a basic pay equal to Rs 15,000 or more, Rs 1,250 each month is diverted into EPS. However, if the basic pay is less than Rs 15,000 then 8.33% of that full amount is directed into EPS. The balance apart from this 8.33% is retained within the EPF scheme. Upon retirement, the employee receives his entire share plus the share retained to his credit in EPF account balance by the Employer.
EPF eligibility criteria for employers
As an employer, you may be exempt from registering for the EPF scheme if you employ fewer than 20 people in your organization, or if most of your employees voice their consent for exemption. In the latter case, you may still be subject to certain conditions and will be required to undergo several formalities. In the case where an employee or group of employees is getting Provident Fund benefits that are on par with or exceeding statutory provisions, an employer can apply for exemption through Form 1.
PPF eligibility criteria
Only an Indian resident above the age of 18 years can open a PPF account. While there is no upper limit on the age for opening, a minor can have a PPF opened by guardian. PPF is usually opened by people who have just entered their employment. You can also make a minor open one under guardianship but subject to a maximum deposit of Rs 1.5 lakh per financial year. All citizens are eligible for tax exemption under Section 80 C up to Rs 1.5 lakh per year. EPF and PPF both go hand-in-hand for providing stable retirement corpus.
How to apply for an EPF
If you are applying for a new EPF account, you will need to do so through your employer. You will have to provide all previous employment details, if any, through Form 11, and all family particulars or nomination details in Form 2.
If you are an employer with an organization that employs 20 people or more, it is mandatory for you to register under the EPF scheme. If your organization employs less than 20 people, you can still opt to register under the scheme. EPF registration requires you to submit details of your company, as well as details of each of the company’s owners. You can register for the EPF scheme on the official EPFO website.
PF and EPF withdrawal eligibility
EPF allows partial withdrawal for specific purpose(s) after completion of seven years of deposit. The purpose of withdrawal needs to be mentioned, such as, marriage, education of self, sibling or child. You can withdraw 50% of the collected amount so far. Other purposes for which you can withdraw are purchase and construction of a house, purchase of land, renovation of home, and the repayment of a home loan up to 12 months before retirement. For home loan site purchase or construction of the house you need to have completed five years before withdrawal. The maximum you can withdraw is 90% of the corpus amount.
If you wish to renovate your house, you can avail this facility twice- one is five years from completion of the house and next you can avail 10 years later from the first withdrawal. The withdrawal amount is limited to 12 times your monthly salary.
EPF is especially flexible when it comes to withdrawal for medical reasons of self, spouse, children or parents with no condition for minimum number of years.
For home loan repayment you can withdraw your EPF only after 10 years of account operation completion.
For retirement – once you cross 57 years of age, you can withdraw 90% of the entire corpus.
How to check eligibility for online PF transfer
An online transfer facility is available where an employee can transfer his or her provident fund (EPF) balance with the previous employer to a new employer with ease. The employee can get his transfer claim attested by either of his employer. The EPFO does allow transferring funds under certain protocols. Earlier Form 13 was required to be filled out, signed by previous employer and submitted to the new employer. There were issues with form misplacement and following up with Human resources of both companies. It explained a lot of issues pertaining to unclaimed amounts in the EPF. There is a revised Form 13 which can be summitted to either employers – new or old. If the new employer is a trust which means it is exempted, then the form needs to be submitted to the old employer only.
Your eligibility verification will take place once you enter your account using the UAN and fill in details of both the employers.
Benefits of EPF
The EPF is a welfare scheme that ensures that all salaried citizens are setting a portion of their earnings aside in anticipation of their retirement. While many salaried people do have their own private savings accounts and investments, many may not have the means or the financial know-how to make the required provisions for their welfare. So, the EPF comes in handy.
All interest on the EPF is tax-free, as are EPF withdrawals. While you will not be able to make a complete withdrawal until you are 58 years of age, you can withdraw up to 90% of your EPF balance if you’re nearing retirement and have been out of employment for 60 days straight. What’s more, in a bid to increase the take-home salary for women, the government has reduced the required monthly EPF contribution for women employees to 8%. The government has also offered to pay the EPF contribution on behalf of the employer at 12% for any new employees and women employees who have been hired before March 2019 for a period of 3 years. Since EPF increases your savings and makes it compulsory for your employer to also contribute, find out about it and monitor it to meet your financial needs in the future.
Drawback of EPF
EPF is a debt-based investment scheme which doesn’t have any exposure to equity. This means when inflation is high, you could be earning negative returns. Thus, you must look for ways to make your EPF savings grow, so you can secure your future with a higher corpus. You can consider investing your EPF money, which enables you to grow your retirement funds easily.
Offset limitations of EPF with Fixed Deposit
To safeguard your returns against inflation, you should look at high-paying fixed-income investments such as fixed deposits. Short tenor FDs particularly help you beat inflation and multiply your EPF corpus substantially.
Bajaj Finance FD allows you to earn higher interest rate in spite of cuts in Repo rates. It is currently offering one of the highest FD interest rates up to 8.60% for Senior Citizen Fixed Deposits. With such returns, you can beat the inflation much more than bank FDs and earn good returns that will allow you to meet your financial obligations.
While EPF investments are dependent on your employer contribution, investments in fixed deposits like Bajaj Finance FD can be multiplied with high interest rates depending on the tenor chosen by you. You can use the online FD interest calculator to know your returns. You can look out for non-cumulative payments from Bajaj Finance fixed deposits to pay you periodically – monthly, quarterly or half -yearly.
What are the income tax rules for epf?
EPF withdrawals are generally tax-free, but specific circumstances may lead to taxation:
- Taxation occurs if the employer contributes over Rs. 7.5 Lakhs annually.
- Interest on excess employee contributions above Rs. 2.5 Lakhs is taxed.
- Government employees' EPF interest is tax-free up to Rs. 5 Lakhs yearly.
- Interest on dormant EPF accounts is taxable.
- Early withdrawals within five years of employment face a 10% TDS on amounts over Rs. 50,000. Exceptions may apply for health issues, business closures, or unavoidable situations.