Employees Provident Fund Organisation, Scheme, Tax Benefits

Employees Provident Fund Organisation, Scheme, Tax Benefits

The Employees' Provident Fund Organisation (EPFO) — one of the world's largest social security organisations — is a retirement fund body which on a mandatory basis provides Universal Social Security Coverage to all salaried employees in India. It operates three schemes -- EPF Scheme 1952, Pension Scheme 1995 (EPS) and Insurance Scheme 1976 (EDLI). EPF or Employees' Provident Fund is a retirement benefits scheme, under which employees and employers make an equal contribution towards the scheme. The contribution made by both the employer and the employee is 12 per cent of the employee's basic salary. The employee gets a lump sum amount on retirement with interest.
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What is EPFO?

EPFO is one of the world's largest social security organisations in terms of the volume of financial transactions undertaken and clientele. According to the Annual Report 2015-16, EPFO currently maintains 17.14 crore accounts pertaining to its members. It provides Universal Social Security Coverage on a mandatory basis by way of Provident Fund, Pension and Life Insurance for all workers of the country. 

What is EPF Scheme?

Employee's Provident Fund (EPF) is a retirement benefit scheme, available for all salaried employees. It is looked after and maintained by the Employees Provident Fund Organisation of India (EPFO). As per law, any registered company which has more than 20 employees has to get registered with the EPFO. 

What is EPF Eligibility?

All salaried employees are eligible for the Employee's Provident Fund (EPF). However, for a salaried employee earning less than Rs 15,000 per month, it is mandatory for them to register for an EPF account. As per law, any registered company which has more than 20 employees has to get registered with the EPFO. If one is drawing a salary higher than Rs 15,000 per month, they are termed a non-eligible employee and it is not mandatory for them to become a member of the EPF, although they can still register. Companies with less than 20 employees can also register voluntarily. One needs to submit details of one's company for EPF registration, along with details of the company's owners. Registration for the EPF scheme can be done on the official website. 

What is the EPF Contribution by Employees and Employers?

Under the EPF scheme, both the employee and the employer make an equal contribution towards the scheme. Once the employee retires, he/she gets a lump sum amount — which includes the contribution made by self and the employer — with interest. The contribution made by both the employer and the employee is 12 per cent of the employee's basic salary. Though the entire 12 per cent of the contribution made by the employee goes into their EPF account, 8.33 per cent out of 12 per cent from the employer's contribution is diverted to the employee's EPS (Employee's Pension Scheme) account. The balance of 3.67 per cent from the employer's side goes into the employee's EPF account. 

What are the Interest Rates on EPFO?

According to the official EPF India website, the current annual interest rate on EPF is 8.55 per cent for the year 2017-18, whereas the interest rate for the financial year 2016-2017 was set at 8.65 per cent. The EPFO's Central Board of Trustees after consultation with the Ministry of Finance reviews the interest rate of EPF every year, for a financial year. EPF interest rate was hiked to 8.65 per cent ahead of Elections 2019. However, it is yet to be approved by the CBT, after which the proposal requires the concurrence of the finance ministry. 

How is the Interest on EPF calculated?

The government and the Central Board of Trustees determine the compound interest that is to be paid on the amount which is credited to the employee as on the 1st of April every year.

The interest on the contributions is calculated yearly, even though the contributions are made monthly. At the beginning of every year, the employees have an opening balance (the amount accumulated till that point). 

What are EPF Claim Forms?

The Aadhaar-based new composite claim form or the non-Aadhaar composite claim form is needed for submission of the physical application to withdraw the PF money. The employee needs to fill the new composite claim form and submit the PF withdrawal application directly to the regional PF office without the attestation of an employer. In case of the non-Aadhaar composite claim form, employees need to fill it up and get it attested either by any bank manager, a Gazetted Officer or a Magistrate, and submit it in the respective jurisdictional EPFO office. 

How to access EPF on the Umang App?

Unified Mobile Application for New-age Governance (Umang) app is a one-stop solution for many government services, including Employees Provident Fund (EPF).

One needs to download the Umang app from Play Store and login using one's mobile number. To access EPF on the Umang App, select EPFO services and then click on the employee-centric services. One needs to enter one's UAN (Universal Account Number) and click on 'Get OTP'. After entering the OTP, one can view passbook, raise a claim and track a claim by selecting the member ID of the company whose EPF account one wants to access. 

How does Provident Fund Deduction from Salary work?

The contribution made by both the employer and the employee is 12 per cent of the employee's basic salary. Though the entire 12 per cent of the contribution made by the employee goes into their EPF account, 8.33 per cent out of 12 per cent from the employer's contribution is diverted to the employee's EPS (Employee's Pension Scheme) account. The balance of 3.67 per cent ( of a maximum of Rs 15,000) from the employer's side goes into the employee EPF account. 

What if I don't want to pay PF?

When in a company the number of employees, who draw wages (basic + dearness allowance) up to Rs 15,000 per month, reaches 20 or more, deduction of PF becomes mandatory and unavoidable. It is not a matter of choice of anyone to participate, it is a statutory compliance and is obligatory if the above conditions are met. 

What are the tax benefits on EPFO?

The EPF money is sovereign-backed and the interest earned is tax-free. EPF enjoys the EEE (exempt-exempt-exempt) status. The employee's contribution is tax-deductible under Section 80C of the Income Tax Act. Hence, the money invested, the interest earned and the money the employee eventually withdraws after the mandatory specified period (5 years) are exempt from Income Tax. 
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