On 10th February 2016, the Ministry of Labour and Employment, Government of India, changed norms on withdrawal of provident fund (PF). Now, you would NOT be able to withdraw your full EPF corpus in any circumstance before the retirement! Lets look at changes in the rules for EPF announced and see how it affects the employees.
Government on 19 Apr 2016 has withdrawn the controversial provident fund (PF) withdrawal norms that had restricted complete withdrawal from PF account before the retirement age of 58 years, bowing to pressure from trade unions. This is the second major stepback by the government on provident fund in less than two months and comes close on the heels of it withdrawing the budget announcement of imposing tax on withdrawal from Employee Provident Fund (EPF) account. EPF Circular for this.
Government on 18 Apr 2016 has deferred the rule till Jul 31 2016. Facing protests in several parts of the country, the government kept in abeyance for three more months the proposed move to bar withdrawal of employers’ contribution to the provident fund corpus until an employee attains the age of 58. The proposal to amend the scheme to allow all accumulations on different grounds like purchase of house, serious illness, marriage and professional education of children, has been sent for vetting by the Law Ministry.
EPFO on 1 Apr 2016 has deferred till April 30 implementation of new norms that restrict 100 per cent withdrawal of provident fund by members after unemployment of more than two months, among others. All these new provisions related to PF withdrawal would be applicable from May 1, 2016.
EPFO on 29-Mar-2016 decided to provide interest on inoperative accounts from April 1, a move which will benefit over nine crore such account holders having total deposits of over Rs. 32,000 crore. Interest on deposits in inoperative accounts will be credited from April 1. Inoperative accounts are accounts wherein the contribution has not been received for 36 months. Retirement fund body EPFO had stopped payment of interest to such accounts from April 1, 2011
Overview of EPF
Employee Provident Fund (EPF) is one of the main platforms of savings in India for nearly all people working in Private sector Organizations. A provident fund is created with a purpose of providing financial security and stability to elderly people. Generally one contributes in these funds when one starts as employee, the contributions are made on a regular basis (monthly in most cases). It’s purpose is to help employees save a fraction of their salary every month, to be used in an event that the employee is temporarily or no longer fit to work or at retirement. The amount is deposited at the Employee Provident Fund Organization (EPFO). The investments made by a number of people / employees are pooled together and invested by a trust. EPF covers following three schemes. Our article Basics of Employee Provident Fund: EPF, EPS, EDLIS covers it in detail.
- Employees’ Provident Fund Scheme, (EPS)1952
- Employees’ Pension Scheme, 1995 (replacing the Employees’ Family Pension Scheme, 1971)(EPS). Our article Understanding Employee Pension Scheme or EPS covers it in detail.
- Employees’ Deposit Linked Insurance Scheme,(EDILS) 1976. Our article EDLI, Employee Deposit Linked Insurance Scheme covers it in detail.
Table below gives the rates of contribution of EPF, EPS, EDLI, Admin charges in India on the Basic Salary.
|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%(capped at a maximum of Rs 15,000)|
|EPF Administrative charges||0||0.85% (From Jan 2015)
|PF Admin account||1.1%|
|EDLIS Administrative charges||0||0.01%|
For example if your basic pay is Rs 20000, the breakup of EPF contribution is as follows. There are 3 ways as mentioned in our article,Basics of Employee Provident Fund: EPF, EPS, EDLIS, but most common one is given below.
- Employees Share (12%) in EPF i.e. 12% of 20000 = Rs 2,400
- Employer’s Share in EPS: Minimum of ( 8.33% of 20000 or Rs 1250) = Rs 1250
- Employer’s Share in EPF: 2400-Minimum of ( 8.33% of 20000 or Rs 1250) = Rs 1250=1150
- Employer’s Share in EDLIS (0.5%) i.e. 0.5% of 20000 = INR 100
- Employer’s Administration Charges (.85%) i.e. 1.11% of 20000 = Rs 170.
Other features of EPF are
- Compound interest as declared by Central Govt. is paid on the amount standing to the credit of an employee as on 1st April every year.
- Interest is earned on the Contribution made by Employee and Employer in EPF.
- Employer contribution to EPS does not earn interest.
- The employer contribution is exempt from tax and employee’s contribution is taxable but eligible for deduction under section 80C of Income tax Act.
- You can check your EPF balance through various ways. Our article How to get information about EPF balance : Annual Statement, SMS, E-Passbook explains the various methods of getting EPF balance in detail.
Changes in the EPF Withdrawal Rules from Feb 2016
The Employees Provident Fund has become the retirement saving in the true sense. the labour ministry has issued a gazette notification about the changes in EPF act, on 10-Feb-2016
- Retirement age has been increased from the current 55 years to 58 years.
- You can withdraw 90% of EPF balance once you reach the age of 57 years.
You cannot withdraw Employer contribution to EPF before 58 years.
- EPF membership does not end with leaving the job.
Government is planning to start online facility for EPF withdrawal in Aug 2016.
Lets go through these changes in detail.
Retirement age increased from the current 55 years to 58 years.
Earlier the retirement age for EPF was 55 years. From 10 Feb 2016 it is increased to 58 years. In today’s scenario retirement age is 58 years across all organisation so this change is keeping in step with times.
You can withdraw 90% of EPF balance once you reach the age of 57 years.
Now, the subscribers will not be able to claim withdrawal of their provident fund after attaining age of 54 years. They would have to wait till attaining the age 57 years. Earlier the retirement age of EPF was 55 years. So one was allowed to withdraw 90% of his EPF balance one year prior to retirement i.e at the age of 54 years. Due to increase in age of retirement, it now changed to 57 years. But the change is that now under this facility, the subscriber would be able to withdraw 100% of his contribution and interest earned on it unlike 90% of the total accumulations earlier
Now you Cannot withdraw Employer part of EPF before 58 years This has been withdrawn
From 10 Feb 2016 You cannot withdraw the EPF contribution by the employer before the retirement.The employer’s portion can be withdrawn after attaining the retirement age (58 years). Remember the withdrawals from the EPF within five years of joining are still taxable. The problem that the EPF would face is whether it would pay interest on Employer share which one is not allowed to withdraw. The inoperative account rule of EPF says that an EPF account would not earn interest if there is no contribution for 3 years. Now onwards, there would be several EPF account without contribution as people would not be able to withdraw their full EPF corpus. Will such account would not give any interest after 3 years? The rule says
“A member who ceases to be in employment and continues to not be employed with a covered establishment for at least two months, may be permitted to withdraw only his own share of contribution, including interest earned thereon. The requirement of ‘two months’ period referred above shall not apply in case of female members resigning from the service for the purpose of getting married or on account of pregnancy/ childbirth.”
Image below shows the sample UAN passbook with no contribution from Apr 2015. So if this person withdraws EPF , before 1 Apr 2016(interest will get added on 1st Apr 2016. After 1st Apr interest for 2016 would also be added.) he would be able to withdraw only 95,056 and not Employer share of Rs 81,593.
EPF membership does not end with leaving the job
From 10 Feb 2016 You cannot withdraw the EPF contribution by the employer before the retirement.The employer’s portion can be withdrawn after attaining the retirement age (58 years). Since you can’t withdraw the 100% of the PF balance, your epf account is not closed.
Online Withdrawal of EPF may start from August 2016
Retirement fund body EPFO may launch an online facility to withdraw provident fund by August 2016. This move will reduce paperwork and provide hassle-free service to its subscribers. As per senior official al EPFO “We have already digitised our records and processes using Oracle operating system. EPFO will soon buy blade servers for setting up three Central Data Centres at Gurgaon, Dwarka (Delhi) and Secunderabad. All the three centres will be connected to 123 offices of the Employees’ Provident Fund Organisation (EPFO),” he said. “The process of procuring servers would be completed by May while the testing would start in June to gauge the response of the system in place. After intensive testing and trials in June and July, we are planning to launch the online PF withdrawal facility in August this year,” the official said.
Once this is operational, subscribers can apply online for PF withdrawal, which will be transferred directly to their bank accounts. At present, subscribers who wish to settle their accounts with the EPFO are required to apply manually. For settling online claims, the subscribers would have to activate their Universal (portable PF) Account Numbers which are seeded with KYC details including bank accounts, Aadhaar number and permanent account number. Ref PF May Be Withdrawn Online From August, Says EPFO Official
Government’s Notice regarding Changes in EPF Withdrawal from 10 Feb 2016
The Notification no. G.S.R. 158(E), dated February 10, 2016 [F.No. S-35012/5/2015-SS-II] which changes the rules for EPF withdrawal are shown in image below. All EPF circulars are at http://www.epfindia.com/site_en/circulars.php?id=sm7_officeUse. Interested readers can read PricewaterhouseCoopers article on it.(pdf) or click here.
The new rules have made the EPF withdrawal difficult. Purpose of EPF is your retirement . Many withdrew their EPF before retirement unable to gain from the power of compounding and defeating the purpose of EPF. These new rules FORCE you to accumulate atleast your Employer’s contributions till you attain the retirement age. Note that the withdrawals from the EPF within five years of joining are still taxable.
The problem is the EPF would face is inoperative account rule of EPF says that an EPF account would not earn interest if there is no contribution for 3 years. Now onwards, there would be several EPF account without contribution as people would not be able to withdraw their full EPF corpus. Will such account earn any interest after 3 years?
Change.org has petition Allow withdrawal of entire Employee Provident Fund (EPF) balance not just employee share. Please sign it if you want roll back on EPF withdrawal of Employer share.
- Basics of Employee Provident Fund: EPF, EPS, EDLIS
- EPF Partial Withdrawal or Advance
- Forms to avoid TDS,15G, 15H, and EPF Withdrawal Forms Form 19, Form 20,Form 10C,Form 10D,Form 51F
- Understanding Employee Pension Scheme or EPS
- EDLI, Employee Deposit Linked Insurance Scheme
- UAN or Universal Account Number and Registration of UAN
What do you think of the changes in EPF Withdrawal? Did you withdrew you EPF or had plans to do so?Did you transfer your EPF on changing jobs? Do you think its step in right direction of making EPF true to its purpose of saving for retirement? It is a victory for common people of India. Thanks to all those who signed the petition and contributed in making the Government withdraw it’s notification. We are thankful to the Garment workers in Banaglore who stage protested which led to creating more pressure on Govt. to roll back the new EPF rules immediately.