Who doesn’t wish to have a sizable sum to lead a lifestyle of their choice after retirement? If you are a full-time employee in India, an EPF account gives you a golden opportunity to make this wish come true.
This government programme requires a financial contribution from both your employer and yourself. A certain amount gets deducted monthly from your salary, and your employer also contributes some amount as per EPF rules.
Keep reading ahead to learn more about this scheme and how you can benefit from it.
Understanding EPF (Employee Provident Fund)
The Employees’ Provident Fund is a government-backed employee retirement scheme. It falls under the purview of social security government schemes governed by the Employees’ Provident Funds and Miscellaneous Provisions Act of 1952.
A statutory body, EPFO (Employees Provident Fund Organization), controls the EPF scheme.
All companies with 20 or more employees can take advantage of PF or EPF accounts. It is to be noted that EPF is a combination of three different schemes with unique objectives. These are the following:
- EPF (Employee Provident Fund): Saves your retirement benefits.
- EPS (Employee Pension Scheme): EPS generates pension amounts for those aged 58 or over.
- EDLI (Employee Deposit Linked Insurance Scheme): It serves as a life insurance cover for employees in scenarios of death during the service period.
As per the scheme, employees and their employers make an EPF contribution (12% of salary). This amount is deducted every month throughout the service period.
At the time of retirement, employees receive a lump sum along with interest. You don’t have to pay any income tax on the received amount and the interest.
Here’s how to check your EPF balance via the EPFO portal:
- Go to the EPFO portal.
- Select Member Passbook.
- Log in with your UAN and account password.
- You will see closing and opening balances, PF transfers, and earned PF interest.
Understanding UAN ( Universal Account Number)
UAN is a unique 12-digit number that each EPF member is allocated by EPFO. You can use UAN to sign in to your EPFO membership portal to check or withdraw your EPF balance.
Note that your UAN number remains exactly the same even after you switch jobs. However, the member ID will change, and you will be provided with a new ID linked with the UAN. To avail of these online services, each employee needs to activate their UAN first.
Here’s how you can activate your UAN via the UAN portal:
- Go to the EPFO Member Portal
- Tap on the option: Activate UAN
- Fill in the requested details (Member ID, full name, Aadhar number, mobile number, and DOB).
- Enter the captcha code
- Tap on the option: Get Authorization PIN
You will receive an authorization PIN at your registered phone number with EPFO.
If your employer has not provided you with a UAN, you can get one from the UAN portal. Use your member ID to enter the portal and get your allocated UAN.
Who Can Apply for an EPF Account?
Employees from both the private and public sectors can open their EPF accounts in India.
The following criteria must be met to become an active member of the programme and avail of EPF, pension, and insurance benefits:
- You must work for an establishment with 20 or more employees. Such companies are liable to provide EPF benefits to their employees. On the other hand, employees working for organisations with fewer than 20 employees can join the programme voluntarily.
- You must have a monthly salary of less than 15,000 INR to register your EPF account. People earning over 15,000 INR can also register their accounts if the Assistant PF Commissioner approves.
- Except for Jammu and Kashmir, EPF provisions apply throughout India.
- Employee and Employer EPF contributions.
As an EPF member, you have to contribute 12% of your salary to the programme each month. Your employer is liable to match that 12%, which gets divided into 3 parts:
- 8.33% goes to the EPS (Employee Pension Scheme).
- 3.67% goes to the EPF (Employee Provident Fund).
- 0.50% goes to EDLIS (Employees Deposit Link Insurance Scheme).
- 0.01% goes into the EDLIS regulation fee and 1.10% into the EPF regulation fee.
Let’s take an example:
Suppose your salary is 18,000/month
12% of your salary goes to the EPF account each month: 18,000*12% = 2160.
And your employer’s contribution will be:
EPF scheme: 18,000*3.67% = 660.6 INR
EPS scheme: 18,000*8.33% = 1499 INR
EDIS scheme: 90 INR
At the time of retirement, the beneficiary receives the entire principal amount and the interest.
- EPF Interest rate.
For the 2022–2023 financial year, the pre-fixed EPF interest rate is 8.1%. The interest rate is calculated each month using the following formula:
Interest rate p.a./12
Thus, if the present EPF interest rate is 8.1% p.a., the monthly rate would be 8.1/12 = 0.675%.
The payable interest is applied to employees’ EPF accounts who have a long time left to retire. The interest rate is taxed based on the tax slab of an EPF scheme member, which does not involve any applied tax on the Employee Pension Scheme.
The EPF amount is then calculated depending on the total of your basic income, retaining allowance, and dearness allowance. The monthly interest rate gets credited to each EPF account at the end of the financial year.
Note: An online EPF calculator is available for employees’ convenience.
Steps to Apply for an EPF Account
To generate your EPF account, you need to go through your employer. Only organisations registered under EPF Act Schedule I can enrol their employees in the scheme.
The basic KYC details you will need to open your EPF account are as follows:
- Pan details
- Electricity bills or house papers for proof of residence
Benefits of Having an EPF Account
You get the following advantages from the EPF program:
- The amount can be used in an emergency.
- PF account is eligible for tax exemption under Section 80C of the Indian Income Tax Act up to a limit of 1.5L.
- Members are eligible to process a partial withdrawal to pursue their current personal financial needs.
- EPF rewards at the account’s maturity increase overall employee funds and enhance capital appreciation.
All Indian employees who meet the criteria for the EPF scheme can avail themselves of all its benefits. The same is not applicable to those belonging to Jammu and Kashmir. It is due to some administrative laws.
Having an EPF account leaves you stress-free about saving or investing throughout your working life. A sizable sum is automatically deposited into your PF account.
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