Introduced under Employees Provident Fund and Miscellaneous Act, 1952, the Employee’s 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.
Introduction of Employees Provident Fund Organisation (EPFO), India
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.
Also Read: Employee Provident Fund Registration
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:
- Organizations operating under wage limit of Rs 6,500.
- Coir, guar gum, beedi, brick and jute industries.
- If the organization is suffering from annual loss much more as compared to their net value.
- Industries which are declared as sick industries by the BIFR.
- Organizations or firms employing a maximum of workers.
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:
- Employees need to become an active member of the scheme in order to avail the benefits.
- If you belong to Jammu and Kashmir, you cannot become part of EPF scheme.
- If you are working with an organization having at least 20 employees, you are entitled to be a part of the scheme and avail its benefits.
- If you are part of EPF, you become directly eligible for availing insurance benefits as well as pension benefits from the first day of your employment.
- The contribution made by the employee and the employer goes totally towards the provident fund of the employee.
- The contribution made by the employer is divided into different parts.
- Apart from the mandatory contribution, an additional contribution of 0.5% towards EDLI has to be paid by the employer. Also certain administration costs towards EDLI and EPF standing at the rate of 1.1% and 0.01% respectively are also made by the employer, making total contribution of 13.61% of the employee salary.
- Although the interest is earned every month, it is transferred to the Employees Provident Fund account only on a yearly basis i.e. on 31st March of the applicable financial year.
- If there is no deposit or contribution made towards the EPF account continuously for 36 months, the account becomes dormant and inoperative and in that case, the interest earned on the same is taxable as per the applicable tax rate.
- It is important to note that the employer does not earn any interest towards his contribution.
- The interest rate is calculated by dividing per annum rate by 12 i.e. if the decided annual interest rate is 12%, then the interest rate. For example: if the interest rate per annum is set at 24% then the monthly rate of interest for that particular financial year is calculated as 24/12 = 2%.
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.
Key Features of the Employees Provident Fund
Some of the key features of the Employees Provident Fund are as below:
Universal Account Number
As per the Act, every employee who is contributing towards the scheme should be allotted a unique identification number, known as Universal Account Number or UAN. UAN is a 12 digit number and is generated by EPFO. The main aim behind introduction of UAN was to link multiple Member Identification Numbers (Member ID) allotted to a single member under single UAN and it thus act as an umbrella for the multiple Member IDs allotted to a single member by different establishments. Also, UAN number does not change and remains same through the lifetime of an employee. UAN is generated as soon as you, as an employee, make your first contribution towards the scheme. Also, it is important to know your UAN because without it, you cannot access the Unified Portal.
Checking EPF Balance
When you are making financial contributions towards a saving scheme such as EPF, you would definitely like to be updated with the balance as well and thankfully you have the option to do so by visiting www.epfindia.gov.in.
Read here: How to Check EPF Balance Online?
You, as a member of the Employees Provident Fund, can download the EPF passbook online by visiting the EPF website. EPF passbook has all the relevant details such as establishment ID and name, member ID and name, office name, employee’s share, EPS contribution etc.
If you are not able to get the required information or facing any issue with the EPF settlement or transfer, you have the option to lodge your grievances and register your complaints at the concerned office or authority. You can lodge your grievance by following below mentioned steps:
- Visit the Official website of EPFiGMS.
- Click on the “Register Grievance” tab.
- You have to fill in all the details as asked in the form pertaining to your account along with the description of the grievance you are facing.
- If you any document related to the grievance, you can upload the same on the website in the specified format and size.
- Once you have lodged your grievance, you will be provided with the reference number. It is important to save the reference number because you will be asked for the same every time you want to check the status.
- If you want to see the status, click on the “View status” on the website.
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.