Employees’ Provident Fund – Eligibility, Interest rate, Benefits

Apart from ensuring a stable income following the retirement, Employees’ provident fund is one of the exempt-exempt-exempt category investment options along with public provident fund and National Pension Scheme. In this column, we will discuss what employees’ provident fund is, eligibility, interest rate, calculation, what is UAN, how to check EPF balance, how to transfer EPF account from one employer to another, withdrawal options, tax implications, benefits, etc.

What is the Employees’ Provident Fund?

In accordance with Employees’ Provident Fund and Miscellaneous Act, 1952 an employees’ fund has been initiated to secure regular cash flow to the employee following retirement or in the circumstances of discontinuing of working either temporarily or permanently due to accident or disease which leads to disability. Since the Employee Provident Fund in the EEE category, the contributions are made by an employee, the interest earned, and the money in the hands of the individual are completely tax-free.

Eligibility

Any organization with the employee strength more than 20 is liable to give EPF benefits to its employees. Both the employer and the employee are liable to make a contribution towards the employee provident fund. Usually, the employee contributes [12% of the basic pay + Dearness Allowance] this contribution must be made once in a month. The interest rates offered by the EPF are in accordance with the guidelines of the EPFO. The scheme is not applicable in the state of Jammu & Kashmir.

What is an Employees’ Provident Fund Account

An EPF account is just like a bank account where your contributions, as well as interest, are credited. After the activation of your EPF account, your contribution to the EPF is credited every month and the interest on the invested amount in a financial year also credited. Any individual is free to check the EPF balance by mobile app or via SMS or via missed call facility.

Where the contributions of employee and employer go to

When you get the first salary, the employer deducts the [12% of the basic pay + Dearness Allowance] and contributes the same into your Employees Provident Fund account. The amount contributed by the employee directly goes to employees’ provident fund account. But the employer’s contributions are divided into 3 trusts in accordance with the EPF act of 1952, and they are –

  • EPF i.e. Employees’ Provident Fund Scheme.
  • Employees’ Pension Scheme i.e. EPS.
  • EDLIS i.e. Employees’ Deposit Linked Insurance Scheme.

Employees’ Pension Fund

Apart from employees’ contribution i.e. 12% towards the Employees’ Provident Fund, the 3.67% of the employer’s contribution [12%] goes to the EPF account.

Employees’ Pension Scheme

In accordance with the EPFO guidelines, the employers’ provident pension scheme came into existence in 1995. The scheme enables an individual employee to provide economic sustenance after the retirement of the individual employee. The 8.33% of the employer’s contribution is made towards the Employees Pension Scheme. The benefits are as follows,

  • Pension after retirement or superannuation.
  • Enable Pension on disability owing to accident or disease.
  • Pension to the spouse on the death of the employee.
  • Pension to the dependent parents when no nominee exists.

Employees’ Deposit Linked Insurance Scheme

This scheme offers life insurance cover to the employees’ up to a maximum sum assured of 6 Lakh. In the case of the death of the employee, the insured sum is credited to the nominee. The employer pays the premium i.e. [0.5% of the Basic pay + Dearness Allowance] towards EDLIS to give insurance coverage to the employee.

The employees’ contribution towards EPF = 12%.

But the employer’s Contribution towards the provident fund account of the employee is 13.61%.

How?

  • 67% towards Employees’ Provident Fund
  • 33% towards Employees’ Pension Scheme
  • 5% towards Employees’ Deposit Linked Insurance Scheme
  • 85% for EPF administrative charges
  • 01% for EDLIS administrative charges.

Interest Rate of EPF

The current interest rate is 8.8% for the contributions made between April 2018 and March 2019. The interest calculation is done on a monthly basis but credited once in a year. The transferred interest is summed up with the contributions made in the following month.

How to calculate the EPF balance on retirement

Suppose the interest rate given for a financial year is 12%. Since the interest rate is calculated on a monthly basis, so the interest rate is 1% per month.

Suppose you have started contributions towards EPF from the month of June 2018.

The applicable interest rate is 1% per month.

Employees’ Monthly Contribution towards EPF = 12% of Rs. 15,000/

=Rs. 1800/-.

Employers’ Monthly contribution towards EPF = 3.67% of 1800= Rs. 550/-.

Month Opening Balance Employees’ Contribution Employer’s contribution Closing Balance Interest earned
June 0 1800 550 2350 Nil[First Contribution]
July Rs. 2350/- 1800 550 4700 Rs. 23/-
August Rs. 4700/- 1800 550 7050 Rs. 47/-
September Rs. 7050/- 1800 550 9400 Rs. 70/-
October Rs. 9400/- 1800 550 11750 Rs. 94/-
November Rs. 11750/- 1800 550 14100 Rs. 117/-
December Rs. 14100/- 1800 550 16450 Rs. 141/-
January Rs. 16450/- 1800 550 18800 Rs. 164/-
February Rs. 18800/- 1800 550 21150 Rs. 188/-
March Rs. 21150/- 1800 550 23500 Rs. 211/-

Total EPF balance at the end of the financial year,

= Contribution from Employee & Employer + Interest earned

= Rs. 21,150/- + Rs. 1055/-

= Rs. 22205/-
What will happen if my basic salary exceeds the maximum limit,

Even if your basic salary is Rs. 20, 000/- and you contribute towards EPF is in accordance with your salary but the employer’s maximum contribution towards EPF is on Rs. 15, 000/- not Rs. 20, 000/-, because the ceiling limit is fixed on Rs. 15, 000/-.

Suppose an individual starts working in any organization at the age of 25 years with a basic salary of Rs. 15, 000/-. The increment of salary is 5% in a year. Then the contribution in the EPF account is as follows,

Employee contribution towards EPF [12%] = [12% of 15000 = Rs. 1800/-]

Employer’s contribution towards EPF [3.67%] = [3.67% of 15000 = Rs. 550/-]

Total contributions in a month = Rs. 1800/- + Rs. 550/- = Rs. 2350/-.

Total Increment once in a year = 5%.

Now the employee is allowed to contribute towards the Employees’ Provident Fund is 58 years.

The EPF balance at the time of retirement = Rs. 51, 21,199/- [assuming fixed interest rate of 8.65%].

To calculate your EPF amount make use of EPF calculator.

What is the Employees’ Provident Fund Organization?

Employees’ Provident Fund organization is a statutory body which came into existence in 1951 by the Employees Provident Fund Ordinance passed in 1951. This organization is one of the largest social security organizations in India. Generally, EPFO allots 12-digit Universal Account Number to all the employees who make contributions in Employees Provident Fund.

What is the Universal Account Number

At the time of activation of EPF account, a 12-digit unique number is given to each EPF account holder. When one individual checks the account balance, interest credited, etc. this UAN number is necessary. The benefits of Universal Account Number is as follows,

  • This UAN is mandatory while the withdrawal of funds from their PF accounts.
  • UAN is quite beneficial to transfer the money from one EPF account to another EPF account in the case of shifting of organization or employer.
  • All the EPF accounts of any employee’ under various employers are treated as one EPF account under the UAN.

How to transfer the EPF account if I change job?

Unique Identification Number enables to track the funds of any individual when you change the job from one employer to another at any point of time.

In order to transfer the EPF account from one employer to another by following the following steps,

You need to register as a member by visiting the home page of EPFO. While registration in the EPFO portal you need to furnish the PF details of the current employer, the previous employer if any, and digital signature. After the registration in the EPFO portal, you need to click on the ‘Request for Transfer of Account’ tab.

How to transfer the Employees' provident fund account if I change job

The system will be redirected to a page which requires to be filled up the application form which is divided into Part A, Part B, and Part C.

Part A

While Filling Part A you are required to fill all the personal details such as Name, Mobile Number, e-mail ID, Bank account number along with IFSC code.

Part B

In Part B you need to furnish the details of your previous employer such as PF account number. After you have given the EPF account number you need to click on ‘Click here to get details’. After you click, details such as date of joining, date of leaving will appear on the screen. If all are satisfactory then you need to furnish the additional details such as date of birth.

Part C

In Part C you need to furnish the details of your current employer such as PF account number. Once you enter the EPF account number, the employer details will appear and you need to furnish all the details. Then your employer will get the notifications and after verification, your employer will forward the application to the EPFO.

After filling all the parts, you need to submit the form. After submission of Form, you will receive a PIN in your registered mobile number. You need to submit the PIN to finish the transfer process. After you finish the transfer process a tracking ID is generated.

Now just print the application from your desktop or laptop or any other gadget you have used, Sign, and send it to your employer to complete the process. Usually, it takes 30-60 days to complete the transfer of EPF account from one employer to another.

How to check EPF balance

Here are the five options by making use of which you can check EPF balance in the comfort of your home if you are registered on the UAN Portal,

  • Using the EPFO Portal.
  • Umang App after registering and verifying your mobile number.
  • By sending a message ‘EPFOHO<UAN>ENG’ to 7738299899.
  • By giving a missed call to 011-22901406 from your registered mobile number in UAN Portal.
  • You can access your EPF account by Installing ‘the m-sewa app of EPFO’ from the Google play store in your Smartphone.

5 Ways to Check Employees' provident fund Balance

Withdrawal Options

One individual can withdraw funds wholly from employees’ provident fund if,

  • Retirement from service.
  • Remain unemployed for the last 2 months.

Partial withdrawal of funds is allowed under the following conditions,

  • 50% of funds on the marriage of self/sister/brother/son/daughter after 7 years of continuous service.
  • 50% of the contributions made by an employee on self/children above class 10 after 7 years of continuous service.
  • Up to [24 times of basic pay + dearness Allowance] for Purchase of land and up to [36 times of basic pay + dearness Allowance] construction of house after 5 years of continuous service.

Tax implications on withdrawal from Employees’ Provident Fund

Although the Employees provident fund enjoys the Exempt- Exempt- Exempt status but TDS is applicable if any individual withdraws funds before 5 years of continuous service. If any employee switches jobs within the 5 years but transfers the EPF to the new employer, no tax will be applicable because this will be counted as a continuous service.

The Benefits of Employees’ Provident Fund

Along with PPF and NPS, Employees Provident Fund is one of the largest saving schemes run by the EPFO, [a statutory body]. It has the following monetary benefits to the salaried employees,

Tax-Free savings

The EPF is in the category of exempt-exempt-exempt which offers tax rebate on the contribution under section 80C. Interest income is tax-free and withdrawal after 5 years is also tax-free.

Ensure financial security after retirement

Since the withdrawal of funds is not easy, this ensures the long term wealth creation which will help to meet the expenses after retirement. But above of all, since the employer also contributes the fund in the EPF account, it is quite helpful to meet the expenses after retirement.

Liquidity of Funds

Since any individual is eligible to withdraw funds in the case of remaining unemployed for a term of 2 months or disabled owing to accident or disease, the funds in quite handy to meet the expenses in difficult times.

Insurance Benefits

Since EPF offers life insurance cover to the employees up to a maximum sum assured of 6 Lakh, this enables the nominee to meet the expenses in the case of unfortunate death of the employee.

Easy transfer of EPF funds

By making use of UAN, any individual can easily transfer the EPF account from the previous employer to current employer in a few simple clicks from the comfort of home.

Hope this article will help you to understand the Employees’ provident fund better. Let me know if I have missed any information regarding EPF. If you have any questions feel free to comment so that we can have a discussion. If you have found this post helpful feel free to share with your loved ones.

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