EPF: 10 things you should know about Employees' Provident Fund

Navneet Dubey

Provident Fund accumulation is long-term saving intended to act as a corpus for retirement.

Employees' provident fund is a superannuation benefit provided to employees after the retirement. A certain percent of mandatory deduction is drawn from the basic salary of an employee with a matching contribution from the employer. The fund is managed by the Employees’ Provident Fund Organisation (EPFO). PF accumulation is long-term saving intended to act as a corpus for retirement. You can take loans and make withdrawals in between for specific reasons if required.

Here are 10 things you should know about EPF:

EPF Act applicability

=> EPF has to be deducted if your company employs 20 or more people. However, even if the company size falls below 20, the EPF Act will continue to apply and your provident fund amount will get deducted from your salary.

=> The amount deducted throughout the year can be declared under Income Tax Act where one can save their taxes.

=> The act is applicable for the whole of India except the state of Jammu and Kashmir.

=> The EPFO management decides the interest rate paid to employees every year which is ratified by the Ministry of Finance. Currently, the rates for the financial year 2017-18 is 8.55%.

EPF calculation

=> For an employee earning up to Rs 15,000 as basic plus Dearness Allowance (DA) component, 12% of it is deducted as his share towards EPF contribution.

“The employer too will contribute the same amount; however, 8.33% of the basic plus DA component is credited to the EPS (Employees’ Pension Scheme) A/c while the rest is credited to the employee’s EPF A/c,” informs Naveen Kukreja CEO & Co-founder, Paisabazaar.com.

=> If the basic plus DA component exceeds Rs 15,000, the employee can contribute a higher amount without any statutory obligation for the employer to make the same contribution.

“In case an employer contributes a higher amount, the employer’s contribution towards EPS will still remain capped at 8.33% of Rs 15,000 and the excess amount will be credited to EPF A/c,” added Kukreja.

=> Let's understand it with an example: Assume that an employee earns Rs 30,000 as basic plus DA component and both he and his employer decide to contribute 12% of Rs 30,000. In this case, the employer’s contribution to EPS would be capped at Rs 1,250 and hence, employer’s contribution to EPF A/c would arrive at Rs 2,350.

EPF benefits

=> EPF money can be withdrawn under certain circumstances and also for certain defined life events. Plus, you can take a loan on your EPF.

=> EPF also has unique features like providing capital for building a house. “EPFO has allowed members i.e. the contributory employees of the provident fund scheme to use 90% of EPF accumulations to make down payments to buy houses and use their accounts for paying EMIs of home loans,” said Anil Rego, CEO – Right Horizon.

=> The EPF can be easily transferred from one company to the other if one changes jobs.

Moneycontrolnews