Basics of EPF

Basics of Employee Provident Fund: EPF, EPS, EDLIS More »

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What are EPF,Pension and Insurance Changes from1 Sep 2014

From 1st September 2014 there have been changes in EPF, EPS and EDLI by Employee Provident Fund Organization  (EPFO). This post discusses these changes. New PF rules may lower take-home pay. But increase in the statutory contribution will boost retirement corpus. There is increased Insurance cover if an employee dies in service. The Pension fund has also gone changes and those  who started their jobs after 1 Sep 2014 and earn more than 15,000 do not have to contribute to Pension scheme of EPF. The process for transfer of EPF and withdrawal of EPF remain unchanged.

EPF regulations Before 1 September  2014

Employee Provident Fund (EPF),commonly called PF,  is one of the main platforms of savings for retirement  in India for salaried class i.e nearly all people working in Government, Public or Private sector Organizations. The tax saving under section 80C, tax-free interest, compounding  and the maturity ensures a good growth of our money.  Interest rate on EPF is announced every year. In the past several decades, the interest rate has ranged from 8-12 % of the balances maintained in the fund.  Our article EPF Interest Rate from 1952 and EPFO, discusses it in detail.

The employer and the employees need to contribute to the EPF from the monthly basic salary plus the dearness allowance towards EPF.The employee contribution is 12% of the monthly basic salary plus dearness allownace. The employer contribution is 13.61 % of the employees’ salary. Employer’s contribution  actually gets split into EPFEmployees’ Pension Scheme (EPS) which offers pension on disablement, widow pension, and pension for nominees and Employees Deposit Linked Insurance Scheme (EDLIS) which offers  life insurance cover  to the PF member.  An employee with monthly salary of up to Rs 6,500 was a member under the three schemes . An employee  can always invest more than 12% of his  basic salary in EPF which is called Voluntary Provident Fund (VPF).  Our articleVoluntary Provident Fund, Difference between EPF and PPF discusses it in detail. The Distribution of employer’s contribution is as given below. Our article Basics of Employee Provident Fund: EPF, EPS, EDLIS talks about EPF, EPF, EDLIS in detail.

Scheme Name Employee contribution Employer contribution
Employee provident fund 12% 3.67%
Employees’ Pension scheme 0 8.33%
Employees Deposit linked insurance 0 0.5%
EPF Administrative  charges 0 1.1%
EDLIS Administrative charges 0 0.01%

Our article How to get information about EPF balance : Annual Statement, SMS, E-Passbook and EPF SMS What is EE, ER? How much on Withdrawal from EPF? talks about actually how much would one get.

Change in EPF from September 1, 2014

Change in salary limit for EPF contribution from Rs 6500 to 15,000

EPF SMS What is EE, ER? How much on Withdrawal from EPF?

I am working in ABC company since 2008. On Checking my PF on website SMS shows EE amt : 47631 & ER amt: 14571.( account updated 31/03/2014). If today I leave job how much would I get from PF”   or “I checked my EPF account, EE & ER should be same but it is showing me different amount? ” Why is it so?  This article gives an overview of Employee Provident Fund (EPF), how to check EPF balance,decodes the EPF Balance SMS ,What is EE , What is ER? Talks about how much money you will get on withdrawing from EPF? Tax on EPF withdrawal.

Basics of EPF 

Employee Provident Fund (EPF) is an integral part of earning for all working professional in India. Most of the employees(government and private) save a small fraction of their salary through EPF, which is automatically debited from their salary and credited to their EPF accounts by their employer. The Employees’ Provident Fund (EPF) managed by the Employees’ Provident Fund Organisation (EPFO) ensures that an individual puts away enough for retirement every month. With 12% of his basic salary and a matching contribution by his employer, a subscriber to the EPF should be able to accumulate a decent amount by the time he retires. For example If someone started working at the age of 25 in April 2000 at a basic salary of Rs 20,000 a month and got a raise of 10% every year, he would roughly have accumulated Rs 32 lakh in his PF account by now. If the trend continues, he would have saved about Rs 2.46 crore by the time he is 55 years old and more than Rs 3.5 crore of tax-free money on retirement at 58. Let’s go over the basic facts of EPF .

  • EPF actually consists of Provident Fund(which we shall PF) and Pension scheme(EPS).
  • Normally, both the employer and employee contribute 12% each of the basic salary of the employee plus DA (if any) to EPF.   (Employee can contribute more towards EPF voluntarily which is called VPF)
  • The entire 12% of employees contribution is added towards PF.
  • 8.33% out of the total 12% of the employers contribution is diverted to the EPS or pension scheme and the balance 3.67% is invested in PF. However, if the basic pay of an employee exceeds Rs. 6,500 per month, the contribution towards pension scheme is restricted to 8.33% of Rs. 6,500 (i.e. Rs. 541 per month) and the balance of employers contribution goes into EPF. EPFO has now raised the eligibility ceiling for EPS to Rs 15,000 a month.
  • The employer contribution is exempt from tax and employee’s contribution is taxable but eligible for deduction under section 80C of Income tax Act.
  • The EPF interest rate is decided by the central government with the consultation of Central Board of Trustees. It is announced on annual basis.
  • The accounting period of PF is from March to February every year.
  • At the beginning of the each fiscal, there would be an opening balance, the amount accumulated till then. Thus, for next fiscal the new opening balance would be: Old opening balance + monthly contribution throughout the year + interest (old opening balance + contribution).
  • Interest rate on PF part of EPF is credited annually at the end of financial year on  31 Mar of financial year .
  • EPS being a pension scheme, interest is not applicable. Hence, no interest is earned on the amount accumulated in EPS.

Our article Basics of Employee Provident Fund: EPF, EPS, EDLIS and Understanding Employee Pension Scheme or EPS explains these  in detail. EPF Calculator can be used to find how much would you have on retirementby contributing to EPF.

TED & Talks on Money

Imagine listening to Bill Clinton, Bill Gates, Stephen Hawking, Sheryl Sandberg, Daniel Kahneman (Behavioural economics founder) or listening on topics like Sir Ken Robinson’s Schools kill creativityAmy Webb: How I hacked online datingRita Pierson: Every kid needs a champion,Kathryn Schulz: On being wrong etc. While writing the article Can Women Have It All : Indra Nooyi, Anne-Marie Slaughter,Sheryl Sandberg, I listened to TED talks by Anne Marie and Sheryl and now am hooked on to TED and TEDx Talks. TED began in 1984 as a conference where Technology, Entertainment and Design converged, and today covers almost all topics  from science to business to global issues  from business to parenting, behavioural finance, women,school education,maths which echo their slogan : Ideas Worth Spreading  and in more than 100 languages. Talks are videos of around 18 minutes . This article talks about TED, history of TED talks, what are TEDx , TED in India and TED talks related to money.

About TED

TED was conceived by architect and graphic designer Richard Saul Wurman, who observed a convergence of the fields of technology, entertainment and design . The first conference, organized by Harry Marks and Wurman in 1984, featured demos of the Sony compact disc, and one of the first demonstrations of the Apple Macintosh computer. Presentations were given by famous mathematician Benoit Mandelbrot , Nicholas Negroponte and Stewart Brand. The event was financially unsuccessful,  it took six years before the second conference was organized. From 1990 onward, a growing community of TEDsters gathered annually at the event in Monterey, California, until 2009, when it was relocated to Long Beach, California due to a substantial increase in attendees.

In 2000, Wurman, looking for a successor at age 65, met Chris Anderson TED enthusiast and the new-media entrepreneur. In November 2001, Anderson’s non-profit The Sapling Foundation  became the owner of TED. Wurman left after the 2002 conference.

In 2005  when idea of a TV show based on TED lectures was rejected by several networks, a selection of talks that had received the highest audience ratings was posted on the websites of TED, YouTube, and iTunes. In January of the next year, the number of TED Talks on the site had grown to 44, and they had been viewed more than three million times. Buoyed by the response TED.com was launched in 2007.As of January 2014, over 1500 TED talks had been posted. In June 2011 the number of views totalled 500 million and on 13 November 2012, TED reached its billionth video view

TED has lots of options, from free to those who can donate. Attendance at TED is by application, and the attendees — scientists, CEOs, designers, intellectuals — are as extraordinary as the speakers, but there are donor passes available. In 2006, attendance cost was $4,400 per person, donor membership for TED2015 on Truth and Dare is available for $17,000. Article The #1 myth of TED: You have to be invited talks about how one can attend the TED conference.

TED talks that got talked about, excerpt from the infographic Why we are all TED Heads?

Popularity of TED talks

Popularity of TED talks

TEDx Talks

Pockets Facebook App by ICICI Bank, Social Banking

India has progressed a lot in terms of banking in last few years.After internet banking, mobile banking, e-wallets what next’s? Social Banking is the new banking option. This article talks about Can Social media and Banking be combined? And then explores in detail the Pocket App by ICICI Bank which uses Facebook for banking. It focuses on Pocket App’s two feature Pay a friend without knowing the account number and Split n Share feature of Pocket App, which really set this app apart and makes one look at Pocket App seriously.

What do I want from Bank in terms of banking services?

Bank is a place where I deposit money in my account  or rather my salary get’s deposited and then I spend money from the account. I hardly go to the bank, I use ATM to withdraw my money for daily use,use ECS to set up my bill payments (electricity,mobile,broadband), netbanking to check status of my account, set alerts. Everytime there is a transaction I get an SMS and email alert(I have set it up using netbanking) which informs me of the balance also. I am  ignoring the various other services that banks offer such as mutual fund ,insurance and Relationship managers. I have options of Netbanking, Mobile Banking. My preference is for NetBanking.

Do I use Social Media like Facebook and Twitter?

As individual Yes Facebook gives me  an opportunity to keeping in touch with my friends and family. Twitter I use more for bemoneyaware, sending quotes related to money(every day at 10:00 am) or sharing articles that I think would be helpful or discussing about financial awareness etc .  Our twitter handle is @bemoneyaware or twitter.com/bemoneyaware

Can Social Media and Banking be combined?

But can banking and Social Media be mixed?  Would I like to use Facebook for my banking transactions. My first answer is No. But then I am a middle aged woman and I am not sure about Facebook being the right platform for doing banking. I mean if I on internet on my laptop I may just as well do the internet banking. Now I am able to understand the reluctance of my parents and inlaws in using the ATM. My parents and inlaws have reluctantly moved to ATM, they still prefer going to bank branch and withdrawing money. ATM machine is outside the bank only says my mother  and I like when Mr. Sharma  asks about me and my children and we talk few minutes about Kya ache din aayenge?  And internet banking is a Big No What if I give wrong account number ? asks my father-in-law and then starts on how Mr Chauhan’s relative’s friend son’s account was wrongly debited for some money and how he had to run around to get it back.

But what about the young generation, especially those in 20s and 30s.  There are 82 millions Facebook users in India in which over 40% users are below 30-years of age. Would they want to use Social Media or rather Facebook for banking. Maybe (when I did a random survey among my friends and colleagues).  Some of people I surveyed asked me back what is the value add in going through Facebook. (some were worried whether their bank balance or transactions would be known to their friends/family members). Sometime back I had written about Kotak Bank’s Jifi account and  did not see the value add in opening  a new account just  for using social media. But then my reader Gautam asked question about ICICI Pockets especially the Split and Share feature. I looked at it and the result is this article as I feel Pockets App by ICICI Bank has potential.

What is Pockets App by ICICI Bank’?

On 24 2013 September, ICICI Bank launched Pockets, an application on Facebook. Pockets by ICICI Bank can be accessed through desktop and mobile version of Facebook.  This app can be used to do financial as well as non-financial transactions while you are on Facebook. Pockets App is available for ICICI Bank customers who have a resident saving account(not NRI account) with a valid debit Card. Pockets  App by ICICI Bank on Facebook can do following :

  • Split ‘n’ share: It allows its users to split and track group expenses and share them with friends on Facebook. It  also allows the customer the option of sending messages to remind friends on pending payments.

Swap Shares, Capital Gain and Tax

Got a comment from our reader  ”I have some share of Satyam Computer which i bought sometime between 2009-2011 on avg price of 85 Rs, now after merger with Tech MahindraI  have got share of Tech Mahindra (on swap ratio of 17:2) (current price around 2200) now if i sell my share, then what will be the tax liability on me on account of long term capital gain (more then 3 year)“. This article explains what is swap ratio, gives an overview of Capital gain, Long term capital gain and Short Term Capital gain, holding period for swap shares.

What is swap ratio?

Swap ratio is an exchange ratio used in mergers and acquisitions of companies. It is the ratio in which the acquiring company offers its own shares in exchange for the target company’s shares. For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share of its own company (company A) for every 5 shares of the company B being acquired. In other words, if company B has 10 crore outstanding equity shares and 100% of it is being acquired by company A, then company A will issue 2 crore new equity shares of company A to the shareholders of company B, proportionately.

Examples of swap ratio

  • In Jul 2013 Shareholders of Mahindra Satyam received one share of Tech Mahindra (Rs 10 each) for every 8.5 shares of Rs. 2 each they had in the erstwhile Satyam that was absorbed in Tech Mahindra.
  • In Apr 2014 for Ranbaxy Sun Pharma deal  it was announced that Ranbaxy shareholders will receive 0.8 shares of Sun Pharma for each share of Ranbaxy

To calculate the swap ratio, companies analyse financial ratios such as book value, earnings per share, profits after tax as well as other factors, such as size of company, long-term debts, strategic reasons for the merger or acquisition etc.

Shares, Capital Gain and Tax

Period of Holding for Shares : Long Term Capital Gain/Short Term Capital Gain

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