Table of contents
- What is Employee Provident Fund?
- What are the eligibility requirements to be an EPF member?
- How does the employee PF work?
- Where does EPFO invest your money?
- What are the tax benefits of EPFO?
- How to calculate interest in EPF?
- What are the EPF withdrawal rules?
- What is the withdrawal process of EPF?
- Final thoughts
Having some retirement savings is certainly important for a working professional, especially one who works for a private company. Although government employees benefit from a pension, having EPF can contribute to savings, making you and your family financially secure.
Irrespective of the total number of years you work, the EPF amount gradually increases, and you can withdraw the same after your retirement. However, understanding the basics of the EPF India scheme is important because you may not be aware of certain EPF benefits you can enjoy.
What is Employee Provident Fund?
The Employees’ Provident Fund Scheme, also known as EPF, was established in 1952. It is a retirement benefit programme wherein both the employer and the employee make monthly contributions until the employee retires. In addition to tax advantages, it offers a higher interest rate than other savings plan benefits.
Every year, the interest rate of EPF is reviewed, and both the employer and employee need to stay updated. For FYI 2023-24, the EPF interest rate is 8.15%. EPF is one of the best investment options as it is risk-free and tax-free.
What are the eligibility requirements to be an EPF member?
- Employees working in both the public and private sectors are eligible to join the Employee Provident Fund.
- Any business considered to be responsible for providing EPF benefits to its employees must have at least 20 employees.
- Employees are eligible to receive several benefits after enrolling in the EPF programme, including insurance and pension benefits.
How does the employee PF work?
If you are an employee having a payscale of more than Rs. 15,000 monthly, you are eligible to contribute a portion of your salary to the EPF scheme. The Employee Provident Fund Organisation (EPFO) receives the combined sum once deposited.
You contribute Rs. 5,000 monthly from your basic salary and your company contributes the same. Following that, Rs. 10,000 of the total is deposited with EPFO. On this sum placed with EPFO, you would get an annual interest payment of 8.15% (considering the current interest rate).
Where does EPFO invest your money?
EPFO invests 85 per cent of the Funds in Debt instruments (Not corporate bonds) and 15 per cent of the investment towards Exchange Traded Funds (ETFs). This investment in ETF is done based on Nifty 50, Sensex, Central Public Sector Enterprises (CPSEs) and Bharat 22 Indices.
What are the tax benefits of EPFO?
The employer’s contribution to an employee’s EPF account, up to a maximum of 12%, is still tax-free under the current income tax laws. However, if the contribution exceeds 12%, it will be taxed.
Section 80C of the Income Tax Act, 1961, allows the deduction of any EPF contribution up to 12%. You won’t be able to deduct any taxes under Section 80C if you choose the new tax regime.
Withdrawing investments before five years will not provide tax benefits, however, holding it longer gives a tax-free status on the amount invested, interest and the PF amount withdrawn.
How to calculate interest in EPF?
The interest rate on the EPF scheme is calculated annually at a rate of 12%. Suppose the basic salary of an employee is Rs 40,000, and joined the organisation in April 2023. The calculation will be as follows-
|Percentage of Salary
|EPF by employee
|EPS by employer
|EPF by employer
|Total contribution per month
You can make use of the EPF calculator available online that will help you get the right amount and idea about the return.
What are the EPF withdrawal rules?
Employees can withdraw their total amount of EPF under three scenarios-
- Once you cross the eligibility age of 58 years
- Unemployed for two months or more
- The premature death of the member and the nominee claims the same.
What is the withdrawal process of EPF?
Steps to withdraw EPF offline–
- The member must fill out the “new composite claim form” or a “composite claim form” and send it to the EPFO office in their jurisdiction.
- It is necessary for their employer to attest a composite claim form.
Steps to withdraw EPF online-
- You must have an active Universal Account Number (UAN).
- Ensure you have an active registered mobile number.
- Link UAN and Aadhaar. You will also require the PAN and the relevant bank information, including the IFSC number.
- Log into the UAN web portal after making sure all the conditions are met.
- After confirming their KYC information, follow the instructions to withdraw your PF balance.
Since EPF benefits are majorly looked after by your employer, having a brief knowledge about it is important. We have tried covering a major portion of employee PF, which might help you during your employment.
Employer contributions to EPFO are:
3.67% for the Employees Provident Fund
8.33% for the Employees’ Pension Scheme
0.50% to the Employees Deposit Linked Insurance (EDLI) account.
Additional fee for administrative accounts starting at ₹500, from June 01, 2018.
A fee of ₹75 in case of no contribution for a certain month.
100% of the amount in one’s provident fund can be withdrawn upon retirement. 75% of it can be withdrawn if an individual is unemployed for more than a month. The remaining 25% can be withdrawn if the unemployment status continues for more than 2 months. Partial withdrawal is allowed for other reasons.
Yes, the employer’s contribution to the provident fund is part of one’s CTC (Cost to the Company). Employee’s contribution to PF is deducted from each employee’s monthly salary.
The PF account will remain active for three years even after you retire, or until you turn 58 years, whichever is earlier. If you do not withdraw the amount after 3 years, the interest earned will be taxable.
Employer contribution to provident fund is exempt from tax. However, the employee’s contribution to PF is eligible for deductions under Section 80C.