You may know it as that annoying, elusive chunk of your monthly salary that you aren’t able to spend. So what is it, and where does it go? Employee’s Provident Fund (EPF) is a retirement benefit scheme that’s available to all salaried employees.
This fund is maintained and overseen by the Employees Provident Fund Organisation of India (EPFO) and any company with over 20 employees is required by law to register with the EPFO. It’s a savings platform that helps employees save a fraction of their salary every month that can be used in the event that you are rendered unable to work, or upon retirement.
When you start working, you and your employer both contribute 12% of your basic salary (plus dearness allowances, if any) into your EPF account . The entire 12% of your contribution goes into your EPF account along with 3.67% (out of 12%) from your employer, while the balance 8.33% from your employer’s side is diverted to your EPS (Employee’s Pension Scheme) .
It’s important to note that if your basic pay is above Rs. 15,000 per month, your employer can only contribute 8.33% of 15,000 (i.e. Rs. 1,250) to your EPS and the balance goes into your EPF account. These funds are pooled together from many employees like yourself and invested by a trust. This generates an interest of 8% – 12%, which is decided by the government and the central board of trustees.
The annual interest rate is available on the official EPF India website, and the interest rate for the financial year 2019 – 2020 is 8.50%. EPF is active every time you receive your pay. If you’re changing jobs, it’s important to also update your EPF information with your new company, giving them your UAN number so that they can continue the contribution.
The compound interest that’s decided upon by the government and central board of trustees is paid on the amount standing to the credit of the employee directly transferred to the Employees’ Provident Fund account and is calculated depending upon the rate which is pre-decided by the GOI along with the Central Board of Trustees (CBT). The CBT administers the Act.
The year in which the new interest rates are announced stays valid for the next financial year i.e. from the year starting on 1st April of one year to the year ending on 31st March of the next year.
While your contributions are made monthly, the interest is calculated yearly. At the start of every year, you have an opening balance (which is the amount accumulated till that point). Your opening balance for the next year would be: opening balance + total monthly contributions + interest on the (old opening balance + contribution). It’s important to note that interest will only accumulate on your EPF balance and not on the funds that your EPS balance, as EPS is a pension scheme.
The employer contribution to your EPF is tax-free, and your contribution is tax-deductible under Section 80C of the Income Tax Act. The money you invest in EPF, the interest earned and the money you eventually withdraw after the mandatory specified period (5 years) are exempt from Income Tax.
Well, chances are that you’ve already started your professional career. The only time you can opt out of the EPF program is at the start of your career, when you tell your first boss that you don’t want to be a part of it and fill out Form 11 .
If you’ve contributed towards EPF even once and have an account created in your name, you cannot opt out of this scheme. Don’t worry though, as even though opting out of the EPF scheme increases your in-hand salary, it’s the easiest way to build a retirement fund.
Having a little less spending power now could mean financial stability later. With the pooling of funds from you and your employer and the relatively high interest rates, you could be on your way to building a strong corpus of funds, without even realising it.
All your EPF details are available on the EPF India website. With the introduction of the UAN (Universal Account Number), you can now access all EPFO facilities online. You can also check your EPF details with your EPF account number.
One may choose to withdraw EPF entirely or partially. EPF can be completely withdrawn under any of the following circumstances:
a. When an individual retires
b. When an individual remains unemployed for more than two months. To make a withdrawal on this circumstance, the individuals must get an attestation of the same from a gazetted office.
Employees planning to settle abroad, or those who have landed jobs in a foreign country are eligible to receive PF withdrawal immediately after registration. You’ll need to submit proofs like a copy of your VISA or employment letter, as the case may be. A lesser known waiver to the waiting period is that a female employee can withdraw her PF money if she is leaving service for the purpose of getting married. The proof for submission here can be your marriage certificate, or even your wedding invitation card. You can withdraw a portion of your EPF savings for the purpose of:
a) Marriage or education of yourself, your siblings, or children.
b) Addressing emergency medical expenses for yourself, spouse, children, or dependant parents.
c) Repaying housing loans for a house owned by you, a spouse, or jointly by both of you. You can do this only after 10 years of service and contribution to EPF.
d) Paying the costs of alterations/repairs to your existing home. You’ll need to have been in service and contributing for 5 years for alterations and 10 for repairs.
e) If you’ve completed 7 years of service, you can withdraw 50% of your EPF contribution up to 3 times in your working life.
It’s recommended not to touch your EPF unless you’re in dire straits and have no other avenue through which you can acquire the funds you need in an emergency. EPF offers you an incredibly risk-free, secure and protected investment for your retirement. You can also opt to contribute more than the minimum 12% towards your EPF , but this is voluntary and the extra contribution does not need to be matched by your employer. While this effectively reduces your in-hand salary at the end of the month, it will be useful in the future.
Let’s look at this with a basic example:Mr. SHARMA starts working with a basic salary of Rs. 20,000, and receives a 5% increment in salary every year.He has worked for 35 years (starting at age 20, up to age 60) and has contributed 12% of his basic salary, which has been matched by his employer as 3.67% to EPF and 8.33% to EPS.His total contribution in 35 working years has been Rs. 26.01 lakh and the company has contributed Rs. 7.95 lakh, making it a total contribution of Rs. 33.96 lakh.This amount will grow to a total of Rs. 1.38 crore at the time of his retirement! (Assuming the rate of interest stays constant at 8.5%).
For those employees wishing make queries regarding their PF account, be a delay in a claim being raised, discrepancies with regard to their contributions, inability to make a withdrawal and so on, the EPFO has a dedicated customer care service. For the those who are new to the EPF, follow the steps to find the EPFO’s customer care toll free number:
1. Log on to the EPFO’s member portal
2. On the top of the page, click on the ‘Contact Us’ button
3. Once you have done that, the EPFO’s customer care toll free number will be displayed – based on the region the employer is located in.
To make the process of transfer claims easier and transparent, the EPFO has introduced the digital signature of employers. Now, employers can approve claims by using their digital signatures. When an employee shifts organisations, his transfer claim has to be attested by either his previous employer or the present one, and this is when the digital signature of the employer comes into play. Back then, employers had to fill Form 13 and get it signed by their employers and then submit it to the regional EPF office.
On April 1, 2011, the government of India decided against adding interest to EPF accounts that have been inoperable for 36 months or more. That meant, that despite the fact that some employees had money on their PF accounts, yet were inoperable, no interest was added to their funds. On November 11, 2016, the government reversed their decision and now, even inoperable EPF accounts will reap the benefits of having interest against it. As of 2015-2016, the interest added to EPF accounts was at 8.8% per annum. This applies to employees who have not withdrawn all their money from their PF accounts.
The UAN is a 12-digit unique number that has been given to every PF member. Before the introduction of the UAN, employees were inconvenienced by the fact that they had to keep shifting their accounts when they shift organisations, but now, the UAN controls all PF accounts of an employee and it can be functioned as one account. The UAN has made almost all processes of the EPF easier and convenient. Some of the benefits are:
1. All PF accounts of an employee are unified and can be treated as one account under the UAN.
2. Transfer from one PF account to another PF account can be done using the UAN.
3. Using the UAN, employees can now make withdrawals from their PF accounts. For those employees who have linked their Aadhaar card to their UAN, they do not need the attestation of their employers to make a withdrawal.
4. Using the UAN, employees can track their accounts, check the contributions, balance of their account and can manage their PF accounts all by themselves, without the hassle of their employer.
EPF members could check their balance via UAN anytime to verify their contributions withdrawals and their outstanding balance. Now, with the introduction of the EPFO’s member portal and the UAN, checking one’s EPF balance is just a few clicks away. To check one’s EPF balance on the EPFO’s member portal, follow the steps:
a) First, the employees must visit the EPFO portal (https://www.epfindia.gov.in/site_en/index.php).
b) On the home page, the member must click on ‘E-passbook’ bottom of the screen
c) The member must enter his/her UAN, password, and captcha details and click on ‘Login’.
d) On the next page, the member will be able to check his/her EPF balance under the respective Member ID.
An employee can even check his/her balance via SMS, give a missed call on 01122901406.
For EPF Scheme members who need help navigating through the processes of the EPF Scheme or facing difficulties, the EPFO has set up a dedicated helpline to come to the aid of such members. The toll free helpline of the EPF is 1800118005.
Since the Aadhaar card has now become the most valid source of identification in the country, linking one’s Aadhaar card to an employee’s UAN has enabled employees to make withdrawals, transfers and so on without the attestation of their employers. The Aadhaar card details linked to the UAN functions as a valid verification of the EPF member as well, enabling the member to perform various tasks related to the EPF seamlessly.