Employee Provident Fund (EPF) in Short

Background:

PF or EPF is also called the Employee Provident Fund Scheme. EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Employees' Provident Fund Organization (EPFO)  manages EPFO Scheme.

It covers every establishment in which 20 or more persons are employed and certain organizations are covered, subject to certain conditions and exemptions even if they employ less than 20 persons each. 

Under EPF scheme, an employee has to pay a certain contribution towards the scheme and an equal contribution is paid by the employer. The employee gets a lump sum amount including self and employer’s contribution with interest on both, on retirement. 

As per the rules, in EPF, employee whose ‘pay’ is more than Rs. 15,000 per month at the time of joining, is not eligible and is called non-eligible employee or exempted employee. Employees drawing less than Rs 15000 per month have to mandatorily become members of the EPF. However, an employee who is drawing ‘pay’ above prescribed limit (at present Rs 15,000) can become a member with permission of Assistant PF Commissioner, if he and his employer agree. 

Frequently Asked Questions on EPF:

1.        What is the contribution by employer and employee?

The contribution paid by the employer is 12% of basic wages plus dearness allowance plus retaining allowance. An equal contribution is payable by the employee also.  

10% rate is applicable on establishment in which less than 20 employees are employed and other prescribed list of establishment released by EPFO.

For most employees of the private sector, it’s the basic salary on which the contribution is calculated. For example, if the monthly basic salary is Rs 30,000, the employee contribution towards his or her EPF would be Rs 3,600 a month ( 12 percent of basic pay) while the equal amount is contributed by the employer each month. 

It should, however, be noted that not all of the employer’s share moves into the EPF kitty. 

Out of employer’s contribution, 8.33% will be diverted to Employees’ Pension Scheme (EPS), but it is calculated on Rs 15,000. So, for every employee with basic pay equal to Rs 15,000 or more, the diversion is Rs 1,250 each month into EPS. If the basic pay is less than Rs 15000 then 8.33% of that full amount will go into EPS. The balance will be retained in the EPF scheme. On retirement, the employee will get his full share plus the balance of Employer’s share retained to his credit in EPF account. 

2.      As an employee, can I contribute voluntary higher?

The employee can voluntarily pay higher contribution above the statutory rate of 12 percent of basic pay. This is called contribution towards Voluntary Provident Fund (VPF) which is accounted for separately. This VPF also earns tax-free interest. However, the employer does not have to match such voluntary contribution 

3.        How and when to withdraw from the EPF account?

When:

•  When an individual retires from employment (attaining 58 years of age)

•   When an individual remains unemployed for a period of 2 months or more. Here, it needs a mention that the fact that the individual is unemployed for more than 2 months has to be certified by a Gazetted officer.

How:

           To withdraw money, one may use:

• submission of a physical application for withdrawal; or
• Submission of an online application

4.        What is Interest on account?

Time to time EPFO decides interest rate on account and declare on its website. Generally interest rate  is between 8% to 12 %. For FY 18 the Interest in EPF account is 8.55%

5. What is Universal Account Number (UAN)?

UAN stands for Universal Account Number to be allotted by EPFO. The UAN will act as an umbrella for the multiple Member ID's allotted to an individual by different establishments. The idea is to link multiple Member Identification Numbers (Member Id) allotted to a single member under single Universal Account Number. 

UAN will help the member to view details of all the Member Identification Numbers (Member Id) linked to it. If a member is already allotted UAN then he/she is required to provide the same on joining new establishment to enable the employer to in-turn mark the new allotted Member Identification Number (Member Id) to the already allotted Universal Identification Number (UAN). 

Remember, in most cases, the employer provides the UAN and the employee just has to get it activated by providing relevant KYC documents to the employer. So if you are changing job and already have a UAN, you need not get a new UAN from your new employer. It is a one-time permanent number which will remain the same throughout one’s career. 

6.  What is the importance of five years of continuous service?

Typically, in early and mid-years of their careers, employees tend to switch jobs. After leaving, they have two options with regard to their EPF. Either they can withdraw it after waiting for 60 days (if unemployed) or transfer the balance to the new employer. 

The EPF withdrawal is not taxable if one has completed at least five years of continuous service. If one has switched jobs in less than five years but transferred the EPF to the new employer, it will be counted as continuous service. Someone, for instance, works for 1.5 years and then joins another  organisation. He transfers his PF balance on to the new employer where he continues to work for 3.5 years. Taken together, it will be five continuous years of service for the employee. It is, therefore,

better to transfer your existing PF to your new employer. 

7.  What is the tax on fund withdrawals?

The following will help you easily understand the taxability on withdrawal of EPF:

a) Amount withdrawn is < Rs 50,000 before completion of 5 continuous years of service

No TDS. However, If the individual falls under the taxable bracket, he has to offer such EPF withdrawal in his return of income

b) Amount withdrawn is > Rs 50,000 before completion of 5 years of continuous service

TDS @ 10% if PAN is furnished; No TDS in case Form 15G/15H is furnished

c) Withdrawal of EPF after 5 years of continuous service

No TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax

d) Transfer of PF from one account to another upon a change of job

No TDS. Further, the individual need not offer the same in return of income as it is not taxable.

e) Before completion of 5 continuous years of service\ if employment is terminated due to employee’s ill health, the business of the employer is discontinued or the reasons for withdrawal are beyond the employee’s control

No TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax.

8.  What is Employees' Provident Fund Advances?

Contributions towards Employees' Provident Fund (EPF) are meant to take care of one’s post-retirement needs. But you don’t have to wait till you retire to lay your hands on it. The EPFO allows one to access one’s EPF even during the course of employment. Such withdrawals are treated as ‘advances’ and not loans. 

Such advances are allowed only under specific situations – buying a house, repaying a home loan, medical needs, education or marriage of children, etc. Also, the amount that you can take as an advance will depend on the specific situation, the number of years of service, etc. As it’s not a loan, one need not pay any interest on such advances. Unlike a loan, it is not necessary to repay the advance. 

9. How to avail advances? 

If you have your Know Your Customer (KYC) compliant Universal Account Number (UAN), which is activated and seeded to your bank account, you don’t have to even go through your employer to get hold of your EPF. The UAN Based Form 31 (New) can be directly submitted to the EPFO. Else, you may fill in Form 31 and submit it to the EPFO through your employer.  

The employee can take the advance for buying or building a house or buying a plot of land and even for construction of a house on a plot owned by the member. The advance can also be taken for repayment of the outstanding home loan, for self or family member’s medical treatment, for the marriage of self/daughter/son/ brother/sister or for post matriculation education of son/daughter. 

10. What are the special advance scheme for housing?

EPFO has recently allowed members i.e. the contributory employees of the provident fund (PF) scheme to use 90 percent of EPF accumulations to make down payments to buy houses and use their accounts for paying EMIs of home loans. 

Under the new rules, an essential requirement for a PF member to withdraw one’s PF money to buy a real estate property is that he or she has to be a member of a registered housing society having at least 10 members. 

As a member, one can use the PF funds for an outright purchase, as a down payment for a home loan, for buying plots, for the construction of a house. The transactions can be made through central government, state government and even from a private builder, promoters or developers. Only those members who have completed 3 years as a PF member will be eligible for this scheme. 

11. What is the different between Public provident fund (PPF) and Employee Provident Fund (EPF)?

PPF and EPF are two different things. PPF is personal saving account for an individual whose income has not been acquainted by a Company or an organization or anyone who is self-employed. Anyone already owning an EPF account can also open PPF account. Please note PPF interest is variable so the maturity interest.

Conclusion

Currently (2017-18), the EPF interest rate stands at 8.55 percent. In terms of returns from a debt instrument, EPF certainly stands tall. The money is sovereign-backed and the interest earned is tax-free. In fact, it enjoys the Exempt, Exempt, Exempt (EEE) status as contributions are deductible from income. There is hardly any debt product that gives such high return with safetyand assurance. Therefore, it’s better to transfer your PF account when you switch job and avoid the temptation to withdraw the amount. 

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Writer:  Akash Vij

Email ID: Akashvij20@gmail.com

References:

• Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and any related rule
• National and International news websites 
• EPFO website for notices, circulars and notifications.

Disclaimer:  This document should not be treated as a manual. Government website, rules, regulations and laws etc. should also be referred while applying for necessary approvals and other submission. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. For Authentication of Data/Information provided please refer the respective acts, law, rules, regulations and notifications. This is only a knowledge sharing initiative and writer do not intend to solicit any business or profession. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.