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Employee Provident Fund (EPF)

You may associate the term Employee Provident Fund or EPF deductions in your salary slip as the chunk of money deducted every month from the salary that you could have used otherwise. Let us assure you that EPF is so much more than that!

What is the Employee Provident Fund (EPF)?

EPF is a savings scheme for employees introduced under the Employees’ Provident Fund and Miscellaneous Act, 1952.

The Employees’ Provident Fund Organization (EPFO) assists the Central Board of Trustees, a statutory body formed by the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 and is under the administrative control of the Ministry of Labor and Employment, Government of India. Central Board of Trustees (CBT) is EPFO‘s apex decision-making body. Companies with over 20 employees are required by law to register with the EPFO.

The amount that is deducted from your salary every month is given to the employee at the time of retirement or when they render incapable of working with the organization.

What does Provident Fund Deduction from salary mean?

Under the Employee Provident Fund savings scheme, the employer and the employee both contribute 12% of the basic salary of the employee (plus dearness allowance, if any) into the Employee PF account.

While your 12% contribution goes directly into the EPF account, the Government’s contribution is divided between Employee Provident Fund Account (EPF account) and Employees’ Pension Scheme (EPS).

The employer transfers 3.67% of his contribution to the Employee Provident Fund and the remaining 8.33% to the Employees’ Pension Scheme (EPS).

The employee needs to make sure to update their EPF information with the new employer when leaving the existing employer. Giving the new employer your EPF number will enable the employer to continue the contribution in the EPF fund.

Do we get an interest on the Employee Provident Fund (EPF)?

The interest is compounded and given to the employee on the 1st of April every year. The government and the Central Board of trustees decide the compound interest on the EPF. The interest is 12% for EPF.

What are the Tax benefits of EPF?

Under the Section 80C of the Income Tax Act, the employer’s contribution to the EPF is tax-free and the employees’ contribution is tax-deductible.

The money you in your Employee Provident Fund, the interest you earn on it and the money you eventually withdraw after the mandatory specified period of 5 years are exempted from Income Tax.

The money you invest in EPF, the interest earned and the money you eventually withdraw after the mandatory specified period (5 years) are exempt from Income Tax.

Can I opt out of Employee Provident Fund (EPF)?

A fresher joining his first job drawing a Basic + DA above Rs. 15,000  can opt out of the PF scheme by filling out Form 11 on joining the job. Such an employee is called an excluded employee. The employee is free to join the PF scheme in his future organizations.

Form 11 is self-declaration of an employees’ status of whether they are a part of EPF/EPS scheme with their previous employer.

Once a person is enrolled in the PF scheme, he does not have an option of exemption from the scheme irrespective of what he is drawing from the organization unless the company is not registered under the EPF Act.

How do I check my EPF balance?

With the help of UAN (Universal Account Number), you can now access the EPFO facilities details of which are available on the EPF India website. You can use your EPF account number as well to check your EPF details.

Can I withdraw money from my PF account?

Generally, the employee can withdraw money at the time of their retirement, when they render incapable of working with the organization or want to be self-employed etc. You are only eligible to withdraw if you have no job at the time and the waiting period of 2 months have already passed. To withdraw your EPF balance you need to fill a declaration, Form 19, sign it and get it verified by your former employer. In case your former employer is not cooperative, your bank manager or gazette officer can attest the form. You then have to submit the duly form along with a letter clearly stating that you have been relieved from your services to the organization and a canceled cheque from your savings account to the EPFO of your jurisdiction.

Employees who are planning to settle abroad or have landed jobs in a foreign country are eligible to receive PF withdrawal immediately after registration. Make sure you have the required proofs for submission like a copy of your VISA or employment letter as per the reason of the immediate withdrawal.

An employee doesn’t have to serve the waiting period if her reason for withdrawal of PF is if she is leaving service for the purpose of marriage. Marriage certificate or even the wedding invitation card is permissible as proofs.

Some of the reasons on the basis which you can withdraw money from your PF is as follows:

  • You can withdraw the PF amount for marriage or education of yourself, your siblings, or children.
  • For the repayment of the housing loans for a house owned by you, a spouse, children or dependent parents.
  • For emergency medical expenses for yourself, children, dependent parents or spouse.
  • On completing 7 years of service you can withdraw 50% of your EPF This can be done up to 3 times in an employee’s working life.

So what’s the big picture?

Withdrawing EPF to pay off an expense should be the last resort after evaluating and exploring every other option.

EPF offers you an avenue for a continuous risk-free and secure investment for your retirement. You can also decide to contribute more than the minimum 12% towards your EPF, but this does not have to be matched by your employer. This may seem like a big hole in your monthly salary but in the long run, it can act as your safety net!

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