The Employees’ Provident Fund (EPF) is a savings scheme introduced under the Employees’ Provident Fund and Miscellaneous Act, 1952. It is administered and managed by the Central Board of Trustees that consists of representatives from three parties, namely, the government, the employers and the employees. The Employees’ Provident Fund Organization (EPFO) assists this board in its activities. EPFO works under the direct jurisdiction of the government and is managed through the Ministry of Labour and Employment.
The EPF scheme naturally aims at promoting savings to be used after retirement by various employees all over the country. Employees’ Provident Fund or EPF is a collection of funds contributed by the employer and his employee regularly on a monthly basis. The employer and employee contribute 12% each of the employee’s salary, that is basic + dearness allowance to the EPF. These types of contributions by the employee and the employer earn a fixed level of interest set by the Employees’ Provident Fund. The amount of interest to be received on the deposit along with the total accumulated amount is totally tax-free, i.e., the employee may withdraw the entire fund without worrying about paying any kind of tax on it.
The accrued amount may also be withdrawn by the nominee or the legal heir of the employee post his death or can be withdrawn by the employee himself post-resignation.
Employees’ Provident Fund (EPF) Schemes:
EPF Scheme, 1952
- Accumulation plus interest upon retirement and death
- Partial withdrawal allowed for education, house construction, illness and marriage
- Housing scheme for EPFO members to achieve Hon’ble Prime Minister’s vision of housing all Indians by 2022
Employees’ Pension Scheme (EPS), 1995
- The monthly benefit for superannuation/ retirement, disability, survivor, widow(er) and children
- Minimum pension on disability
- Past service benefit to participants of the former family pension scheme, 1971
Insurance Scheme (EDLI), 1976
- The benefit provided in case of death of an employee who was a member of the scheme at the time of death
- Benefit around 20 times of wages. Maximum benefit of Rs 6 lakhs
Benefits of the Employees’ Provident Fund (EPF) Scheme
Employees’ Provident Fund scheme is among one of the largest and biggest saving schemes available to Indian employees. The key benefits of the scheme are:
- Tax-Free Savings: EPF Scheme provides certain interest on the deposits at a specific rate that is predetermined by the organisation. Both the amount of interest received on the deposits and the actual deposited amount is deemed to be tax-free by the Indian Government. Any kind of withdrawal which is made at maturity or after the completion of 5 years of having availed the scheme is 100% tax exempted. However, if the amount is being withdrawn prematurely (within 5 years), it is not free of tax. This feature helps an employee receive special benefits in the form of added income to his savings in the form of interest.
- Long-Term Financial Security: Funds deposited in this account cannot be withdrawn easily and hence, help in ensuring savings.
- Retirement Period: The accumulated fund under this scheme may be used at the time of retirement of the employee. This provides relief to the retired employee in the form of monetary security.
- Unseen circumstances: The accumulated fund can be used by the employee in case of any kind of emergency. The employee may choose to withdraw his/her fund prematurely. The scheme provides for such pre-term withdrawals in certain special cases.
- Unemployment/Income Loss: In the case where the employee loses his/her current job owing to any reason, then these funds may be used to meet expenses.
- Resignation/Quitting of Job: The employee post-resignation is free to withdraw his/her 75% of the EPF fund after one month of the date of having quit the job and the remaining 25% after 2 months of unemployment.
- Death: In the case of the death of the employee, the collected amount along with the interest is given to the employee’s nominee, thus helping the family tide through difficult times.
- Disability of the employee: If the employee is no longer in the position to work, he/she may use these funds to help him/her get over the difficult time.
- Lay-off: In cases of sudden layoffs or retrenchment from the job, this fund may be used by the employee until the time he/she gets another suitable job.
- Long run savings: A safe and full proof saving scheme for individuals wishing to have long-run investments.
- Liquidity of funds: This scheme acts as a sound source of income for an individual at the hour of a financial crisis. The funds so obtained may be used to meet unavoidable expenses like medication needs or education needs.
- Pension Scheme: The employer not only contributes towards the PF fund but also makes the necessary contributions towards the employee’s pension which can be later used by the employee post-retirement.
- Insurance Scheme: The act also provides for certain provisions, whereby the employer is required to make certain contributions towards an employee’s life insurance where group insurance cover is not present. This scheme ensures that the employees are properly insured.
- Accessible All Over: With the help of the Universal Account Number (UAN), employees can easily get access to their PF account via the EPF member portal. They can transfer their accounts whenever they make a shift in their current jobs.
- Employees need to become an active members of the scheme in order to avail of benefits under it
- Employees of an organization are directly eligible for availing Provident Fund, insurance benefits as well as pension benefits since the day they join the organization
- Any organization employing a minimum of 20 workers is liable to give EPF benefits to the workers
- This scheme does not cater to the needs of people residing in Jammu and Kashmir
Employee’s Contribution towards EPF
The Employees’ Provident Fund is a fund where both the employer as well as the employee contribute a part of the salary. These contributions are made regularly on a monthly basis. The interest rate fixed depends upon the employee’s basic pay along with the dearness allowance in his salary.
In general, the contribution rate for the employee is fixed at 12%. However, the rate is fixed at 10% for the below-mentioned organizations:
- Organizations or firms employing a maximum of 19 workers
- Industries declared as sick industries by the BIFR
- Organizations suffering annual loss much more as compared to their net value
- Coir, guar gum, beedi, brick and jute industries
- Organizations operating under a wage limit of ₹ 6,500
Employer’s Contribution towards EPF
The minimum amount of contribution to be made by the employer is set at a rate of 12% of Rs. 15,000 (although they can voluntarily contribute more). This amount equals Rs. 1800 per month. It means that both the employer as well as employee have to contribute Rs. 1800 each per month towards this scheme. Initially, this amount was set at 12% of Rs. 6,500 which would equal Rs. 780 to be contributed both by the employer and the employee.
What Is UAN?
Saving money is always a good habit. It helps one prepare and plans a better future. With an intention to promote the attitude of saving for a happy retired life, investment in a provident fund is one of the most common avenues. It is basically an investment fund wherein the employee and employer/ Government contribute towards an employee’s retirement corpus. All provident fund investments are made in the account maintained by EPFO (Employees Provident Fund Organization).
The EPFO allocates a Universal Account Number (UAN) for such accounts. Universal Account Number is a unique 12-digit number allotted by the EPFO to all its members. It is an identification number for the members, who are entitled to the Provident Fund. Irrespective of changing jobs, the UAN remains the same. The services provided by EPFO are all accessible online
EPF was initiated by the Government of India as a way to ensure the financial security of employees of member organizations after their retirement or after a lack of employment opportunities due to any permanent or temporary disability. EPF is also a tax saving instrument that is widely popular with every taxpayer.
FAQs – What is EPF?
1. What is the minimum contribution for EPF?
The minimum contribution for EPF is Rs. 15,000.
2. Is the contribution to EPF tax-free?
Yes, the contribution made to EPF is tax-free.
3. What is a UAN?
UAN (Universal Account Number) is a unique 12-digit number allotted by the EPFO to all its members. This number is used by the members for all correspondence with the EPF.
4. When can a person withdraw from EPF?
A person can withdraw from EPF in the case of loss of the current job owing to any reason, or post-resignation when the member can withdraw 75% of the EPF fund after one month of the date of having quit the job and the remaining 25% after 2 months of unemployment.
5. Is the interest received on EPF taxable?
No, the interest received on the deposit is tax-free in the hands of the taxpayers.