From Employers to Employees: All you need to know about the Employees' Provident Fund (EPF)

EmployeeProvident Fund (EPF)

The Employee Provident Fund (EPF) is one of the most common forms of investment among salaried individuals. The employees and employers contribution is maintained by the Employees Provident Find Organisation (EPFO), under the administrative control of Ministry of Labour and Employment, Government of India.

How the PF is calculated in India?

Identify your EPF contribution - This amount usually appears on your payslip as 'PF deduction'. It will be either 12% of (Basic Salary + DearnessAllowance, if applicable) or 12% of Rs.15,000 i.e., Rs.1,800. ... Hence, the actual contribution towards the EPF from the employer is 3.67%.

What do you mean by provident funds?

A provident fund is a form of social safety net into which workers must contribute a portion of their salaries and employers must contribute on behalf of their workers. The money in the fund is then paid out to retirees, or in some cases to the disabled who cannot work.

What is provident fund in salary?

EPF/ PF. The Employee Provident Fund, or provident fund as it is normally referred to, is a retirement benefit scheme that is available to salaried employees. Under this scheme, a stipulated amount (currently 12%) is deducted from the employee's salary and contributed towards the fund.

How much percentage PF is deducted from salary in India?

Employees complete 12% goes to PF account while employer contributions' 8.33% goes to Pension Fund and 3.67% goes to PF Fund. Employee State Insurance Corporation(ESIC) is deducted on gross salary which is 1.75% from the employee contribution & 4.75% from the employer contribution.

What is Gratuity Fund in India?

Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job. The Employee Provident Fund (EPF) is one of the most common forms of investment among salaried individuals. A small part of your salary is invested in EPF and that amount is matched by your employer every month. The employees and employers contribution is maintained by the Employees Provident Find Organisation (EPFO), under the administrative control of Ministry of Labour and Employment, Government of India.

Here’s all you need to know about Employee Provident Fund:

Equity: Since the EPF is invested in fixed income alone, it is expected to offer a good rate of return when invested in equities. The EPFO has also started investing in stock market through exchange-traded funds. The government has approved for 5-15% of EPF money to be invested in the volatile stock market.

Nomination: Did you know that you can assign a nominee for the amount of provident fund you’ve been investing every month? The nominee listed in your account will be contacted at the time of death and handed over all your money. The Form 2 provided by the EPFO department will allow you to nominate and update nomination changes.

Employee Pension Scheme (EPS):  12% of your salary every month goes into your provident fund. However, out of the money your employer matches, 8.33% of it or a maximum of Rs 1,250 goes into your Provident fund and the rest into your pension scheme. You are liable for pension only if you’ve survived 9.5 years of work life and your EPF has been transferred when you changed jobs.

Withdrawal: Did you know that it’s illegal to withdraw your EPF amount when you’re switching jobs? Yes, you can only withdraw your provident fund money if you don’t have a job at the time of withdrawal. You are only supposed to transfer your EPF account when you are changing jobs.

Opt out of EPF: If your basic salary is more than Rs 15,000 then you have an option to opt out of employee provident fund. However, you will have to make this choice at the start of your job. If you’ve been a part of the EPFO family even once, then you don’t get the choice of opting out.

RTI: If there is any kind of information you would like to know about employee provident fund, all you have to do is access your right to information. You can file an RTI application for any issues regarding your provident fund, be it transfer, withdrawal or balance enquiry.

Employees Provident Fund Scheme (EPF) is the main scheme under The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. It is managed under the aegis of Employees' Provident Fund Organisation (EPFO). It covers every establishment in which 20 or more persons are employed and certain organisations 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. 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.

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. In the case of establishments which employ less than 20 employees or meet certain other conditions, as per the EPFO rules, the contribution rate for both employee and the employer is limited to 10 percent. 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.

Diversion out of employer’s share

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, 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.

Higher voluntary contribution by employee or Voluntary Provident Fund

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.

Withdrawals from the EPF account

According to the EPF Act, for claiming final PF settlement, one has to retire from service after attaining 55 years of age. The total EPF balance includes the employee’s contribution and that of the employer, along with the accrued interest. There is, however, a window to partially withdraw the amount for those nearing retirement. Anyone over 54 can withdraw up to 90 percent of the accumulated balance with interest. But what if someone decides to quit his job before reaching 55? Under the existing rule, the employees, in such cases, can withdraw the full PF balance if he is out of employment for 60 straight days or more.

There was a proposal which restricted employee access to a part of the funds, allowing for the withdrawal of the employer contribution only after attaining the age of 58 years, which stands in abeyance as of now. To withdraw money, one may now use ‘UAN based Form 19’ and in effect bypass the employer signature requirement. This facility will be available to all those subscribers whose UAN is activated and seeded with the KYC details like bank account and Aadhaar number. Currently, the form has to be submitted offline, but the EPFO is expected to extend this facility online too.

Interest on account

The Interest in EPF is calculated on the basis of monthly running balance.

UniversalAccount Number

UAN stands for Universal Account Number to be allotted by EPFO. The UAN will act as an umbrella for the multiple Member IDs 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).

UAN has been made mandatory for all employees and will help in managing the EPF account and even PF transfer and withdrawals will become much easier than before. 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 jobs 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.

When you join a new organisation, the first thing you should do is ask your employer for the ‘New Form No. 11- Declaration Form’ to furnish the existing UAN. If you don’t have one, then just give your previous PF number along with the date of exit from your previous job.

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.

Tax on early withdrawals

Withdrawing the PF balance without completing five continuous years of service has tax implications. The total employer’s contribution amount along with the interest earned will get taxable in the year of withdrawal. Also, the amount of deduction claimed under Section 80C on one’s own contribution will be added to one’s income in the year of withdrawal. In addition, the interest earned on one’s own contribution will also be subject to tax.

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.

Availing 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.

Which Claim/Form(s) to submit?

Overview about EPF Claim Form

The Employee Provident Fund Organization offers its members the option to withdraw their PF balance at any point of time subject to conditions. Ideally, PF balance should not be withdrawn at any juncture, but a member may feel the need for finances which cannot be stalled. There are various implications of withdrawing from a PF account, most important among which is the TDS applicable on withdrawals. As such, it is not advisable to withdraw EPF balance during active employment, rather members should look toward PF transfer between organizations as and when they change jobs.

Types of EPF Claim Forms

There are Types of PF Forms available from the organization for different claim processes. Major among them are:

·       Form 19: This is to be filled in case of final settlement of PF account by a member.

·       Form 10C: This is to be filled for claiming Scheme Certificate/Withdrawal Benefit as per Employees’ Pension Scheme ’95.

·       Form 10D: This is to be filled for pension claims.

·       Form 20: This is to be filled for claiming PF by legal heir/nominee on death of a member.

·       Form 5IF: This is to be filled for claiming assurance benefit as per Employees’ Deposit Linked Insurance ’76 by legal heir/nominee of a member.

·       Form 31: For claiming advance/temporary withdrawal as per Employees’ Provident Scheme ’52.

·       Form 13: For transferring PF/pension between different accounts.

·       Form 14: For financing a life insurance policy out of the PF account

Which PF Forms to Fill for EPF Withdrawal?

Form 13 has to be submitted when transferring PF account from old employer to new employer.

EPF Claim Form Details

Form 19 - Final Settlement of PF

Form 19 has to be submitted for claiming the amount under your EPF account. The form is usually used when a member leaves a service, retires or is terminated from employment due to illness, retirement etc. This is a 2-page form and you will need the following details beforehand when filling up this form:

·       PF account number

·       Bank account number (as registered by employer)

·       IFSC code

·       Date of joining

·       Date of leaving

·       PAN number (to avoid/reduce quantum of TDS)

·       Form 15G/15H (for senior citizens and members under income tax limit respectively)

Apart from these, you need to fill in information such as mode of remittance (money order/bank account details/cheque), full postal address, signatures and Re.1 revenue stamp. You will also be required to submit a blank cancelled cheque along with the form to verify the bank account details.

Form 10C - Pension Fund Settlement

Form 10C is to be submitted for claiming the Employee Pension Scheme (EPS) benefits. A part of the employer’s contribution is categorized as EPS funds which can be withdrawn along with the PF balance subject to conditions. Form 10C is a 4 page form which is used to claim the following:

·       Refund of employer share

·       Scheme Certificate for membership retention

·       Withdrawal Benefit

On these, the following conditions are applied:

·       If an employee’s total service is less than 9.5 years, and he/she is less than 50 years old, he/she can apply for Withdrawal Benefit, which is basically Pension Fund Money Back scheme. Such employees are not entitled for pension.

·       If an employee’s service is more than 9.5 years and he/she is less than 50 years old, only the Scheme Certificate can be claimed.

You need the following information among others while filling the first 2 pages of the form. The 3^rd page concerns advances you have taken (if any) while the 4^th page is for administrative purposes only.

·       Last employer name and address

·       PF account number

·       Last working day

·       Full postal address

·       Bank account details

Form 10D - Pension Claims

This form is used to claim pension benefits. The form has to be submitted in duplicate if within a state and in triplicate if in a different state. Details need to be submitted as per the forms given above. Pension can be claimed by:

·       Member or

·       Orphan or

·       Widow/widower or

·       Specified nominee

Form 20 - Claim PF by Nominee

This form is to be used in the unfortunate case of the member’s death. The form has to be filled by family member or specified nominee for claiming the PF balance of a member. It has to be submitted through the last employer. In case that is not possible, the PF claim form can be attested by a government officer including but not limited to a magistrate, gazetted officer, postmaster, MP/MLA, bank manager, municipal chairman/president and other officials as specified in the form. Details need to be submitted as per the forms given above and additionally the claimant (nominee) also needs to fill information about himself.

Form 5IF - Claim EDLI insurance benefits by Nominee

This form is used to claim the EDLI insurance benefits by the nominee or legal heir of a member. The form is quite small and similar to form 10D with minor differences and has to be filled by the appropriate person (nominee/legal heir) to claim assurance benefits.

Form 31 - Claim Advances from the PF Balance

This form is used to claim advances from the PF balance by a member. The form allows advances for various reasons such as:

·       Purchase/construction of house/land/flat

·       Addition/alteration to house

·       Refund of outstanding principal and interest of loan

·       Lock/closure of establishment for more than 15 days resulting in uncompensated unemployment for the member

·       No wage for more than 3 months

·       Discharge/dismissal that has been challenged in court

·       Own/family’s health treatment

·       Children’s education

·       Equipment purchase for a disabled dependent

·       Withdrawal within 1 year before retirement

Form 14 - Financing a Life Insurance Policy

This form is to be submitted when financing a life insurance policy out of the PF account. You need to enter details such as the sum, PF account number, account balance, LIC office address and various information related to the life insurance plan specifics.

Form 13 - EPF Transfer Claim Form 

Offline EPF transfer

This form is to be filled for transferring your EPF account from the last employer to the new one. The form can be filled both online and offline. The offline form can be submitted through either the old employer or the new employer. The form has to be submitted in triplicate to the respective HR. The HR will then forward it to the respective agency which will then submit it to the PF office. The process is lengthy and usually slow.

Online EPF transfer

At least one of the employers should have their digital signatures registered with the EPFO to avail the online transfer benefits. The member should be enrolled with the Online Transfer Claim Portal (OTCP) to avail online transfer facility. Once registered at the portal, member can request for transfer of account and fill in details as instructed. He/she can then download the printable Form 13 which is to be signed and submitted to employer. The HR will then authorize the claim through the OTCP tool, and the process is faster compared to offline means.

Online PF withdrawal

Online PF withdrawal facility will be available soon from the EPFO board. As of now, members can check their PF balance and view/download their PF passbooks on the online portal. There is an option for linking your Aadhar card with the PF account which will allow you to take more actions online. The government is in the process of allowing online PF withdrawals, however this is expected to take some time for implementation as a lot of factors are at play here.

Online PF claim status

You can check the EPF claim status of your online PF withdrawal through the official EPFO website. You need to enter EPFO office, establishment code of employer, extension code of employer (if any) and your PF account number. 

Five Things to Keep in Mind

The Employees' Provident Fund plays a very important role in building up the corpus to be used during the post-retirement phase of one's life. It is by far the easiest way to invest. The fixed returns and the taxability feature also make it an attractive option to invest in. However, many of us tend to ignore these benefits and treat the EPF in an indifferent manner. Investing in Employees' Provident Fund can be a very beneficial investment decision if one understands some essential factors and follows simple principles.

Explained below are some of these basic principles:

1. Don't opt out

The fixed monthly contribution is the core of provident fund investment. The fund is built up by the regular monthly investment, which is 12 per cent of the basic salary of the individual. The employer too has to contribute the same amount towards Employees' Provident Fund as its share. In some organisations, the employees get an option not to contribute for the fund whereas the employer's contribution would be mandatory. On the other hand, there is a Voluntary Employees' Provident Fund option, which allows them to contribute more than 12 per cent of the basic salary to ensure a higher corpus in future, but the employer's contribution cannot exceed the pre-determined level of 12 per cent of the basic salary. One should contribute at least the minimum investment amount towards it. By investing in Employees' Provident Fund, you can avail benefits under Section 80C of the Income Tax laws.

2. Wait until retirement

The Employees' Provident Fund schemes are specifically made to attain financial security during post-retirement life. They have strict withdrawal and taxation rules which make the fund a suitable option to invest. The corpus, if allowed to build up along with the incremental contribution after each year, can reap very high benefits in the long run. A salaried employee with basic salary of Rs. 15,000 and 30 years left for retirement can attain a corpus of Rs. 1.72 crore at the time of retirement. The power of compounding plays a major role in accumulating such huge returns. If properly utilized, the EPF can solve half the problems of fund requirement after retirement.

3. Don't treat it as a surplus

The Employees' Provident Fund is considered by many as an alternative surplus amount to be used to fulfill certain short-term goals. Sometimes it is treated as an emergency fund. It would be prudent not to treat the fund as an additional surplus and leave it alone only for the retirement goal.

There is an option to avail a loan on the Employees' Provident Fund amount in one's account, which is used by a lot of investors as the loan rates are lesser than the rates offered by the banks for personal loans. Typically, these loans are availed to meet short-term financial needs like marriage, construction of a house or any medical emergency. Although being a reserve it looks very tempting to withdraw from the Employees' Provident Fund, the long-term impact of making such decisions should be considered before opting for such a loan. For goals other than retirement, there are avenues which can fulfill the investment requirement and are more feasible options than withdrawing from the PF account.

4. Roll over the account during job change

In case of an individual who has worked with more than one employer, the employee has the option to transfer the balance in the previous company's PF account to the account belonging to the new organisation. In case if the amount is not transferred and kept idle it tends to get ignored and eventually forgotten by most of them. Moreover, the interest is accrued only for three years in a PF account which has been kept idle. If not done within 3 years of leaving the organization, EPF account transfer becomes a difficult and tedious procedure to follow. One should ensure that the accounts are rolled over and clubbed with the new account to ensure proper capital appreciation.

5. Apply for a universal PF account number

Salaried professionals who have worked in multiple organisations go through the trouble of transferring and managing multiple accounts belonging to their older companies. To tackle that tricky situation, the Employees' Provident Fund Organisation (EPFO) is now providing a Unique Account Number (UAN) where multiple accounts can be managed through a single portal. The scheme was launched in October 2014. It is advisable for all working professionals to obtain their UAN's to ensure convenient management of their PF accounts.

CONCLUSION

Provident fund is a very strong investment tool as part of retirement planning. However, one should not rely totally on the EPF as due to fixed returns, it does not allow you to reap the benefits of the long-term growth in the market. Also, the corpus which one receives at the time of retirement may not be sufficient totally for the post-retirement life, considering medical inflation. Other investment options should be explored to ensure complete fulfillment of the retirement goal.

Source https://economictimes.indiatimes.com, http://profit.ndtv.com/, http://www.epfindia.com/site_en/ & https://www.bankbazaar.com/