Administered by the Central Board of Trustees, Employees Provident Funds Act 1952 came into effect in the year 1952, which replaced to the whole of India except Jammu and Kashmir and covers six industries namely Cigarettes, Electrical, Mechanical or General Engineering Products, Iron and Steel, Paper and Textiles. With its headquarters in New Delhi, EPF covers every establishment in which 20 or more persons are employed and certain organizations are covered as well subject to certain conditions and exemptions even if there are less than 20 persons each.
Introduction of Employees Provident Fund
Introduced under Employees Provident Fund and Miscellaneous Act, 1952, the Employees’ Provident Fund (EPF) is a savings scheme which is administered and managed by the representatives from three parties i.e. the government, the employers and the employees. As a common understanding, EPF is typically a retirement benefit scheme which is available to all salaried employees and is also a good savings platform that assists employees in saving a fraction of their salary every month and can be used in the event that you are rendered unable to work or upon retirement.
One of the prime reasons why EPF was introduced was to provide financial stability and security to elderly people. As per the Employees Provident Fund Scheme, you start contributing to the fund as soon as you start working as an employee and in most cases; the contribution is on monthly basis. Implemented by the Employees Provident Fund Organization (EPFO), EPF is a scheme where both the employer and the employee contributes toward it at a rate of 12% of the basic salary and dearness allowances, if any, which makes the total contribution to the EPF is 24% every month. However, one can choose to opt out of the scheme if he or she is not willing to contribute in the same and if that’s the case, one has to opt out at the start of his employment by filling Form 11. In case you have earlier contributed towards the Employee Provident Fund Scheme even once and have a valid account in your name, you are no longer eligible to opt out of the same.
Employees Provident Fund (EPF)
EPF or the Employees Provident Fund is a fund where both the employee and the employer contribute a part of the salary towards the same on a regular and monthly basis. Generally the contribution rate is fixed at 12%, i.e. the minimum contribution to be made by the employer is at a rate of 12% of Rs 15,000 which amounts to Rs 1800 per month and thus makes a total contribution of Rs 3600 per month towards this scheme. However, there are certain organizations which contribute towards the scheme at the rate of 10% towards the scheme, such as:
Interest rate on the Employees Provident Fund is decided every year. For the financial year 2017-18, the interest rate is 8.55% whereas for the current financial year it is yet to be decided. Irrespective of the interest rate, the interest earned is directly transferred to the Employees Provident Fund account and is calculated depending upon the rate which is pre-decided by the Government of India and the Central Board of Trustees.
Also Read: SBI Public Provident Fund Account Opening
As per the EPF rules, there are certain important points related to EPF contributions, such as:
What makes the Employees Provident Fund more attractive is its nomination facility i.e. members of EPF can nominate their father, mother, spouse or children and its purpose is to have a person who is responsible and trustworthy for handling the nominator’s assets after his/her death. Nomination has to be a person who is from the employee’s family, otherwise it is considered invalid. Also once the employee gets married, he has to make fresh nomination for his spouse and all nominations made before marriage are considered invalid.
Some of the key features of the Employees Provident Fund are as below:
Benefits of the Employees Provident Fund:
- Unseen circumstances: Life can throw certain unseen circumstances such as death, disability, lay-off, resignation, income loss etc and at times like these; the accumulated fund can be used. EPF allows you to withdraw your fund prematurely.
- Long-term financial security: If not withdrawn prematurely, it is an effective way to ensure long-term financial security.
- Tax-free savings: Amount of interest received on the deposit as well as the actual deposited amount is exempted from tax by the Government of India i.e. if you are withdrawing the amount after 5 years of having availed the scheme, it is 100% tax-exempted. However, in case of premature withdrawal, you have to pay the applicable tax.
- Retirement period: You can use the accumulated amount at the time of your retirement and thus provides relief and financial security.
- Accessible all over: One can access to his or her EPF account from anywhere with the help of Universal Account Number.