Employee Provident Fund (EPF) is one of the main platforms of savings in India for nearly all people working in Private sector Organizations. This article is about what is Employee Provident Fund(EPF), Employee Pension Scheme(EPS), Employees Deposit Linked Insurance Scheme (EDLIS), how the contributions are calculated based on basic salary and dearness allowance, what are the EPF interest rate, how much would one save in EPF, how would one know about the amount accumulated in PF.
Retirement fund body EPFO On 19 Dec 2016 decided to lower the interest on EPF deposits for the FY 2016-17 to 8.65 per cent, from 8.8 provided in 2015-16, for its over four crore subscribers.
Overview of Employee Provident Fund
What is Employee Provident Fund?
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 investments made by a number of people / employees are pooled together and invested by a trust. Typically 12% of the Basic, DA, and cash value of food allowances has to be contributed to the EPF account. When one says EPF it means
- Employee Provident Fund(EPF) : Employee’s contribution is matched by Employer’s contribution(till 12%). 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 amount earns interest as declared by Government.
- Employees’ Pension Scheme (EPS) of 1995 offers pension on disablement, widow pension, and pension for nominees.
- Employees Deposit Linked Insurance Scheme (EDLIS) provides for a lump sum payment to the insured’s nominated beneficiary in the event of death due to natural causes, illness or accident, while in job.
The EPF & MP Act, 1952 was enacted by Parliament and came into force with effect from 4th March,1952. A series of legislative interventions were made in this direction, including the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. Presently, the following three schemes are in operation under the Acts:( Click on the link if interested in reading the acts which are in pdf format)
1. Employees’ Provident Fund Scheme, (EPS)1952
2. Employees’ Deposit Linked Insurance Scheme,(EDILS) 1976
3. Employees’ Pension Scheme, 1995 (replacing the Employees’ Family Pension Scheme, 1971)(EPS)
Table below gives the rates of contribution of EPF, EPS, EDLI, Admin charges in India.
|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%|
Difference between EPF and EPF Private Trust?
For an employer there are three ways he can contribute to Provident Fund of his Employees if number of employees is more than 20. Exempt means free from an obligation, duty, or liability to which others are subject.
- One is to save in an un-exempt fund like the EPF under the EPFO. Un-exempted firms are those firms which maintain the PF accounts of their workers with EPFO. There are over five crore active subscribers whose accounts are being managed by EPFO.
- Save in a company-run exempt fund, EPF Private Trust, recognised by the EPFO and which pays at least the same interest as the EPF. EPF Trust has to do the duties and responsibilities like EPFO. EPF Private trusts are formed by firms that manage the money and accounts of their workers themselves and have exemption from filing PF returns. The members of these trusts enjoy income tax and other benefits at par with EPFO subscribers. Such establishments who seeks exemptions and create EPF Private Trusts are called exempted establishment. However, the pension is payable only by the EPFO. Companies like TCS, Accenture have their Private PF Trust. Our article EPF Private Trust, the Exempted EPF Fund discusses it in detail.
- Put money in a company-run excluded fund, which is not EPFO regulated, but is set up with approval from the resident income tax commissioner. This type of fund looks after all investments and fund management itself and is self-regulated.
How does one join EPF under EPFO?
Employees working in private sector, drawing basic salary upto Rs 15000(From Sep 1 2014 salary limit has been increased to Rs 15,000 before it was Rs 6500) have to compulsory contribute to the Provident fund and employees drawing above Rs 6501 have an option to become member of the Provident Fund. It is beneficial for employees who draw salary above Rs 15001(Before Sep 1 2014 minimum was Rs 6501) to become member of Provident Fund as it is deducted from the salary before it is deposited on bank or given hence compulsorily saving happens.
Those who started job after 1 Sep 2014 and earning more than 15,000 Rs in basic and DA will not be contributing to the EPS or Pension scheme.
From 10 Feb 2016
one is not allowed to withdraw Employer share of EPF contribution and retirement age has been change to 58 years. Our article Changes in EPF Withdrawal Rules from 10 Feb 2016 discusses it in detail.
Every employee needs to submit a declaration,Form 11, when he takes up new employment in an organisation which is registered under the EPF Scheme of 1952. This form, EPF Form 11, contains basic information regarding the employee and it is mandatory for an employee to fill it upon joining an organisation . EPF Form 11 is a self declaration by new joinee about his status whether he is a member or non member of EPF / EPS in earlier employments and opt out of EPF. This article EPF Form 11 on Joining a New Job explains what is EPF Form 11, goes through contents of EPF Form 11 and instructions on how to fill it.
To become a member of the Employee Provident Fund one has to fill Form 11 and Nomination Form. For more details check out EPFI webpage for Employees. Sample images of the Form 11 and Form 2(front and back) are given below. Click on the image to enlarge.
Government Employees do not contribute to EPF but to NPS from 2004
Government employees, do not contribute to EPF. Contribution to Tier-I is mandatory for all Government servants joining Government service on or after 1-1-2004 (except the armed forces in the first stage), whereas Tier-II will be optional and at the discretion of Government servants. In Tier-I, a Government servant will have to make a contribution of 10% of his basic pay plus DA, which will be deducted from his salary bill every month by the PAO concerned. The Government will make an equal matching contribution. However, there will be no contribution from the Government in respect of individuals who are not Government employees.
How is UAN related to EPF?
UAN is Universal Account Number. The UAN is a 12-digit number allotted to employee who is contributing to EPF. Universal number is a big step towards shifting the EPF services to online platform and making it more user-friendly. Please note that The universal account number remains same through the lifetime of an employee. It does not change with the change in jobs. Now one has UAN number and PF number also called as Member Id.
An employee will have one UAN or Universal Account number, which as the name implies will remain the same. It will maintain all your Member Ids. Its like you can have multiple Saving Bank account but all these are tied to your one Permanent Account Number or PAN. So when you change your job and the new employer, if contributing to EPF, gives you a new Member ID. This new Member ID has to be linked to your UAN number.
Through Universal Account Number (UAN) driven Member Portal ,http://uanmembers.epfoservices.in, EPFO provides a number of facilities to its members through a single window. Member has to activate his registration to avail various facilities such as UAN card download, member passbook download, updation of KYC information, listing all his member ids to UAN, file and view transfer claim. Following articles explain UAN in detail.
- UAN or Universal Account Number and Registration of UAN
- FAQ on UAN number and Change of Job
- UAN Problems, Password,Mobile Number,Incorrect Details and Help Desk
Who runs EPF?
Employee Provident Fund (EPF) is implemented by the Employees Provident Fund Organisation (EPFO) of India. An establishment with 20 or more workers working in any one of the 180+ industries ( given here) should register with EPFO. EPFO is a statutory body of the Indian Government under Labour and Employment Ministry. It is one of the largest social security organisations in the world in terms of members and volume of financial transactions undertaken.
Interest on EPF
Q. What is the interest on the PF accumulations ?
A : 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.
The EPF interest rate of India is decided by the central government with the consultation of Central Board of trustees. In the past several decades, the interest rate has ranged from 8-12 % of the balances maintained in the fund. The EPF interest rate notification is available on the official website of EPF India on an annual basis. The same is communicated through major dailies in all cities. To see Interest rate over the years from 1952 please click the image to enlarge. Following table shows Interest rate of EPF for last few years. You can check out interest rate and how EPFO pays interest in our article EPF Interest Rate from 1952 and EPFO
|Financial Year||Interest Rate|
How EPFO manages to pay the interest?
The EPFO ‘declares’ the annual interest paid out to subscribers each year. In the last four years, the returns have been around 8.75 per cent a year. This interest is decided based on the surplus of its income over expenses. The fund earns income from the interest on government deposits, gilts, corporate bonds and the other securities it holds in its portfolio. It incurs costs on subscriber payouts and expenses. n 2015-16, EPFO invested 5% of its incremental corpus, or a little more than Rs.6,000 crore, in stocks. Labour ministry officials estimate that in 2016-17, the amount would rise to as much as Rs.10,000 crore. Our article How EPFO Manages Money, EPFO invesment in Stock Market discusses it in detail.
At the beginning of each year there would be opening balance, the amount accumulated till then. Contribution is made monthly but interest is calculated yearly. One gets interest on opening balance and monthly contribution. So for next year the new opening balance would be: old opening balance + contribution throughout the year + interest on the (old opening balance + contribution)
To see the calculation for each year in above example click on the image below. You can also play with EPF calculator.
Q. How much would one save by investing in EPF?
Let’s say Swayam starts with a basic salary of Rs. 20,000. Every year, on an average, he gets a 5% increment. He started at 25 years and worked till 60 years so his working life is, 35 years. He contributes 12% of his basic salary towards PF which is matched equally by one’s company, (EPF contribution is 3.67%, EPS 8.67%).
In this case, over the course of 35 years of his working life, his total contribution is Rs. 26.01 Lakhs. Of course, his company makes a contribution of Rs. 7.955 Lakhs, total contribution of Rs 33.967 lakh. And this amount grows into – Rs. 1.38 Crores at the time of his retirement!
Q. Can I voluntary contribute more than the statutory limit to EPF?
You can contribute additional amount (over and above 12%) to Provident Fund by depositing VPF (oluntary Provident Fund). However, employer is not bound to do a matching contribution.The employer is liable to pay contribution only on 6500/15000 whatever is the basic salary. This is called voluntary contribution and a Joint Declaration Form needs to be filled up where the employer and the employee both have to give a declaration as to the rate at which PF would be deducted. Our article explains it in detail.
How to check EPF balance?
EPFO has been using technology to turn into a more professional and nimble organisation. Now you can check your EPF balance through SMS, see your passbook. It has introduced online facility for transferring the balance to a new account. Going forward, all members will have a Universal Account Number(UAN) which will be portable across employers and cities. UANs have already been allotted to active contributors to the EPF
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.
- Annual Statement : EPFO used to send an annual statement through the employer to the employee which gives details about the PF accumulations. It is wide slip of paper. The statement contains details like, Opening balance, amount contributed during the year, withdrawal during the year, interest earned and the closing balance in the PF account.
- EPF balance by SMS : From July 2011 one can check the EPF Account balance online.
- Go to http://epfindia.com/site_en/KYEPFB.php
www.epfindia.com/MembBal.html.Select EPFO Office
- Enter PF Account Number which is in the format : EPFO Office Code/Establishment Code(Max. 7 Digits)/Extension(Max. 3 digits)/Account Number (Max 7 digit) (PF Account Number may not have Extension code, in that case leave it blank).
- Enter your Mobile and Name, Accept Terms and condition and Submit.
- You will get SMS alert from EPFO : EE amount : Rs XXXXX and ER amount Rs:XXXXX as on <Today’s Date>(Account updated upto Date).
- Sequence of steps is shown in the images below. Click on image to enlarge.
You will get SMS alert from EPFO : EE amount : Rs XXXXX and ER amount Rs:XXXXX as on <Today’s Date>(Account updated upto Date).
EE = Employee Contribution and ER = Employer Contribution on date(shown in Account updated date) mentioned in your SMS. It does not show current balance of PF Account as on Today
- Go to http://epfindia.com/site_en/KYEPFB.php
- EPF Passbook : On 30 Nov 2012 EPFO launched e-passbook facility. The online EPF or EPF ePassbook is an online version of the employee’s provident fund account. You need to register at members.epfoservices.in to get the passbook. Note it takes time for registration to become active. You will get an SMS when you would be able to download the passbook. It shows information in detail, opening balance, contribution every month from employee and employer, how employer contribution is being split into PF and EPS. Withdrawals if any that has been made from the EPF account.
EPF passbook with UAN
The UAN is a 12-digit number allotted to each Employee Provident Fund member by the Employee Provident Fund Organization(EPFO) which gives him control of his EPF account and minimises the role of employer. UAN number activation started in Oct 2014. You can download the EPF passbook if you have activated your UAN number. Our article UAN or Universal Account Number and Registration of UAN talks about how to register for UAN.
EPF and Mobile You can also view it through the Mobile App launched by EPFO in Sep 2015, as explained in our article EPFO Mobile App , SMS Service and Missed Call : Employee Provident Fund
Withdrawal and Transfer of EPF
Q. At the time of change of Job what happens to EPF? Can one withdraw the entire amount?
A: Yes, legally it is mandatory to transfer EPF Account at the time of job change. But, people generally don’t do it; instead of transferring, they withdraw the amount. From 10 Feb 2016 You cannot withdraw Employer contribution to EPF before 58 years. Our article Changes in EPF Withdrawal Rules from 10 Feb 2016 discusses it in detail.
In case of EPS, if the service period is less than 10 years, you’ve option to either withdraw your corpus or get it transferred by obtaining a ‘Scheme Certificate’. Once, the service period crosses 10 years, the withdrawal option ceases.
Q Are there in any tax implications, if I withdraw the EPF balance before 5 years?
A: In case you are a member of recognized provident fund it depends on if contribution is over 5 years or not, including transfers from different companies. If you withdraw before completing a period of 5 years, then all your previous years income gets recomputed as if the fund was unrecognized from the very beginning (i.e., the tax benefits you received on your own contribution u/s 80C/88 in earlier years will get forfeited) and further the employer contribution and interest received will be added to your current income subject to relief under section 89.
Q. What is TDS on EPF withdrawal? What is Form 15G?
- Provident fund withdrawal is before five years of completion of service attracts tax deducted at source (TDS) at 10 per cent from Jun 1 2015.
- TDS will be deducted at 34 per cent if one does not submit PAN.
- Exemption from TDS has been given to subscribers with no taxable income, provided they submit 15G/15H form. To avoid the levy of TDS, 15H (for senior citizens) or Form No. 15G (other than senior citizens) can be submitted, provided the provident fund amount payable is up to basic exemption limit which for AY 2016-17 is 2,50,000 and Rs 3,00,000 for senior citizens respectively.
- Our article How to Fill Form 15G? How to Fill Form 15H? explains how to fill the form 15G/15H in detail.
Q Are there in any tax implications, if I withdraw the EPF balance after 5 years?
No if you withdraw after 5 years of total contribution to EPF(which includes multiple jobs) then your EPF withdrawal becomes tax free. Show it as exempt income in Income tax return.
Q. Can I withdraw from EPF while working?
Q How to transfer EPF?
Ideally, you should initiate the process of transferring your EPF balance as soon as you join your new organization and are allotted a new PF account number. From Oct 2014 most of employees have been alloted Universal account number or UAN , a 12-digit number by the Employee Provident Fund Organization(EPFO) which gives him control of his EPF account and minimises the role of employer. Universal Account Number (UAN) Member Portal (www.uanmembers.epfoservices.in) was launched in September 2014. This portal offers lot of facilities to employees or EPF members. But, EPF Online Transfer Claim is still not available. For time-being you have to submit online EPF Transfer claims through http://epfindia.com/Employee_OTCP.html or Click on Online Transfer Claim link ar EPF website http://memberclaims.epfoservices.in/ .
Employee Pension Scheme
Employees’ Pension Scheme (EPS) of 1995 offers pension on disablement, widow pension, and pension for nominees. EPS program replaced the Family Pension Scheme (FPS). It is financed by diverting 8.33 percent of employer’s monthly contribution from the EPF(restricted to 8.33% of 6500 or Rs 541. From Sep 1 2014 salary limit has been increased to Rs 15,000 so Rs 1250 per month) and government’s contribution of 1.17 percent of the worker’s monthly wages. Our article Understanding Employee Pension Scheme or EPS discusses it in detail.
The purpose of the scheme is to provide for
1) Superannuation Pension:Member who has rendered eligible service of 20 years and retires on attaining the age of 58 years.
2) Retiring Pension:member who has rendered eligible service of 20 years and retires or otherwise ceases to be in employment before attaining the age of 58 years.
3) Permanent Total Disablement Pension
4) Short service Pension: Member has to render eligible service of 10 years and more but less than 20 years.
Q: When can an employee start receiving a Pension?
A: A employee can start receiving the pension under EPS only after rendering a minimum service of 10 years and attaining the age of 58/50 years.However, no pension is payable before the age of 50 years and early pension after 50 years but before the age of 58 years is subject to discounting factor @ 4% (w.e.f. 26.09.2008) for every year falling short of 58 years. In case of death / disablement, the above restrictions doesn’t apply.
Q: How long the pension is available?
A: Lifelong pension is available to the member and upon his death members of the family are entitled for the pension.
Q: What is the formula for calculating the monthly pension?
A:Under Employees’ Pension Scheme, the monthly retiring pension is decided on the basis of ‘Pensionable Service’ and ‘Pensionable Salary’ and is worked out as follows
Monthly pension=( Pensionable salary*Pensionable service)/70
Pensionable Salary is arrived at by considering the average contributing salary immediately preceding 12 months from the date of exit from the scheme, normally this would be limited to Rs 6,500 p.m. unless certain enhanced contributions are made by the employer with permission. Pensionable Service is the service in years rendered by the member for which contributions have been received maximum cannot exceed 35 years
Q: What is the maximum amount of Pension available under EPS?
A: The government has also fixed monthly pension benefit at Rs 1,000 from the financial year 2014-15 . Those who started job after 1 Sep 2014 and earning more than 15,000 Rs in basic and DA will not be contributing to the Pension scheme. Before Sep 1 2014 it was Based on a maximum employment period of 35 years, and maximum contribution of Rs 6500, the maximum amount of pension as per the Pension formula would be = 6500 * 35)/70 = Rs 3,250 per month or Rs. 39,000(3250 * 12) per year. Our article How much EPS Pension will you get with EPS Pension Calculator explains it in detail.
- Maximum Pension one can get is Rs 7,500 per month.
- Minimum Pension one can get is Rs 1,000 per month.
Q. Is the Monthly Pension paid under EPS just?
The amount of pension is meager. If one would have invested Rs 541 in a recurring deposit at the rate of 8% for 35 years one would get 12,49,263 as maturity amount. If this maturity amount is put in buying the Pension plan say LIC’s Jeevan Akshay VI and put the above amount Rs 12,49,263 in the premium calculator of LIC with option as Annuity payable for life, one would get montly pension of Rs 10,150 which is much more than Rs 3250.
Employees Deposit Linked Insurance Scheme (EDLIS)
Under the EDLI scheme life insurance cover is provided to the PF members. The cost of the scheme is borne by the employer but as the amount of life coverage under this statutory scheme is very low, usually employers opt out of the EDLI scheme by going for group insurance scheme which usually provides higher coverage to employees without any increase in cost to the employer. Premium for the EDLI is entirely funded by the employer, which contributes 0.5% of monthly basic pay (capped at a maximum of Rs 15,000) as premium for life cover in case the organization does not have a group insurance scheme for its employees.
In Sep 2015, the EPFO announced increase in the maximum amount assured under its Employees Deposit Linked Insurance Scheme (EDLI) to Rs 6 lakh from the existing Rs 3.6 lakh. The claim amount of the EDLI is decided by the last drawn salary of the employee. The claim amount would be
- 30 times the salary.For this calculation salary is basic pay plus DA or Dearness Allowance. The upper limit of wage for the EDLI is Rs 15,000.
- Along with this, the bonus of Rs 1.5 lakh is also given.
- Thus, the maximum EDLI claim amount would be Rs 6 lakh [(30 x15,000) + 1,50,000].
The condition of continuous employment of one year under current employer before being eligible for insurance benefits was also removed.
Our article EDLI, Employee Deposit Linked Insurance Scheme discusses it in detail.
- What are EPF,Pension and Insurance Changes from1 Sep 2014
- Basics of Employee Provident Fund: EPF, EPS, EDLIS
- Understanding Employee Pension Scheme or EPS
- Tax on EPF withdrawal
- Transfer EPF account online : OTCP November 10, 2013
- Articles related to Salaried on EPF, Variable Pay, ESOP,NPS, Income Tax, MBA, Changing jobs
In this article we covered about EPF, EPS, the calculation etc. In the next article we shall cover about how to withdraw or transfer from EPF, EPS. Difference between EPF and PPF? If you find something missing or incorrect please let us know, we shall correct is As Soon As Possible(ASAP). Hope you found this article helpful. What are you thoughts on EPF? Does it make sense to contribute to EPF?