What is Employee Provident Fund?
When you retire from your job, your salary stops, but your expenses don’t. In fact, the cost of living and expenses rises after retirement. So, if you want to ensure that your daily expenses are taken care of and that your lifestyle is maintained as before, a good retirement corpus is absolutely necessary. This is where Employee Provident Fund (EPF) can come to your aid.
The Employee Provident Fund (EPF) is a scheme that helps people save up a sufficient corpus for retirement. The plan was introduced with the Employees’ Provident Funds Act in 1952 and is today managed by the Employees’ Provident Fund Organisation (EPFO).
In this scheme, an employee has to contribute 12% of their basic income towards the fund every month. The employer matches this amount with an equal contribution. When you retire, you receive the total amount (personal as well as the employer’s contribution) as a lump sum along with interest. The EPF is regarded as a low-risk investment as the Government of India manages it and assures a fixed rate of return.
Basics of Employees’ Provident Fund (EPF)-
Broadly speaking, EPF comprises of the following three different schemes-
- EPF Scheme, 1952 (EPF)- This is an ‘Employees’ Provident Fund Scheme’ which is a retirement benefit scheme.
- Pension Scheme, 1995 (EPS)- This is an ‘Employee Pension Scheme’ which aims to generate pension after the specific age.
- Insurance Scheme, 1976 (EDLI)- This is an ‘Employee Deposit Linked Insurance Scheme’ which deals with life insurance cover.
What is the Eligibility criteria for Employee provident Fund (EPF)?
The eligibility criteria for joining the EPF scheme are-
- An organization having 20 or more workers/ employees are mandatorily required to register for EPF Scheme and give EPF benefit to the employees.
- However, an organization with less than 20 workers/ employees can voluntarily obtain EPF registration.
- A salaried employee earning less than INR 15,000 is also mandatorily required to obtain EPF registration.
- Employees earning more than INR 15,000 per month can register for an EPF account, but it requires the approval of the Assistant PF Commissioner.
- Any Indian citizen can invest in EPF scheme.
EPF Benefits:
EPF provides you with multiple benefits. Some of the benefits are:
1. Guaranteed returns:
EPF is a government-backed scheme that offers you a guaranteed rate of return. The Government reviews and declares the interest rates every year on EPF contributions. You do not have to worry about any market fluctuation; your returns are safe and guaranteed.
2. Tax savings:
Investing in the EPF scheme allows tax savings under Section 80C of the Income Tax Act. You can claim tax deductions of up to Rs. 1.5 lakh for EPF contributions.
3. Retirement funds:
EPF is focused on building the corpus for your retirement. At retirement or 58 years of age, you can withdraw your entire corpus, which you can use to fund your retirement. Also, you may apply for a monthly pension by filling out Form 10D.
4. Funds for emergencies:
In case of emergencies, you can use EPF funds and make a partial withdrawal request. As per the partial withdrawal rule, you can withdraw up to 90% of your corpus.
How is Interest on EPF Calculated?
Interest on EPF is calculated monthly but credited at the end of the financial year, i.e. 31 March of every year. You can calculate your monthly interest on your EPF balance by multiplying the interest rate with the monthly closing balance and dividing it by 12. Let’s take an example to understand how interest in EPF is calculated.
Assume your current basic salary is Rs. 15,000/- hence, your contribution will be Rs 1,800/- in this case. Apart from this, your employer will also contribute the same amount. However, this contribution will be distributed between the Employee Pension Scheme or EPS (8.33%) and EPF (Remaining Difference). Hence, your employer will contribute Rs 1249.50/- to EPS (8.33% of Rs 15000/-); the remaining Rs 550.50/- (Rs 1800 – Rs 1249.50) will be contributed to EPF. So, your total monthly contribution, including employer contribution, will be Rs 2350.50/- (Rs 1800 + Rs 550.50).
There will be no interest on the first-month balance, as the opening balance is zero. In the next month, the total monthly balance will be Rs 4701/- (Rs 2350.50 + Rs 2350.50). So, you will earn interest of Rs 32.31 (4701 x 8.25% x 1/12). And the same process continues every month.
Category |
Percentage of Contribution |
| Employee contribution to EPF | 12% |
| Employer contribution to EPF | 3.67% |
| Employer contribution to EPS | 8.33% |
| Employer contribution to EDLI | 0.50% |
Category |
Percentage of contribution (%) |
| Employees Provident Fund | 3.67 |
| Employees’ Pension Scheme (EPS) | 8.33 |
| Employee’s Deposit Link Insurance Scheme (EDLIS) | 0.50 |
| EPF Admin Charges | 1.10 |
| EDLIS Admin Charges | 0.01 |
For more info visit – https://amfos.in
