The Employee Provident Fund (EPF) is a retirement savings scheme in India for employees to build a corpus for their post-retirement life. In this scheme, the employee and employer contribute a certain percentage of the employee’s basic salary towards the fund every month. The scheme is also known as the Employees’ Provident Funds & Miscellaneous Provisions Act, of 1952.
Who is Eligible for Employee Provident Fund?
The eligibility criteria for the Employee Provident Fund (EPF) scheme in India can be broken down into two categories: mandatory and optional:
Mandatory Eligibility
- Employees with a basic salary of Rs. 15,000 or more per month: Anyone earning a basic salary exceeding this threshold must be enrolled in the EPF scheme by their employer. This includes both private and government sectors.
- Certain categories of establishments: Employers with 20 or more employees are legally obligated to register their establishment under the EPF Act and enrol all eligible employees in the scheme, regardless of their salary.
Optional Eligibility
- Employees earning less than Rs. 15,000 per month: Individuals with a basic salary below the mandatory threshold can still choose to voluntarily join the EPF scheme. In such cases, both the employee and employer can contribute 12% of the basic salary towards the employee’s EPF account.
- Certain exempted establishments: Employees working in establishments excluded from the EPF Act (like some government departments or public sector undertakings) might have their provident fund schemes with similar benefits. They can still choose to opt into the EPF scheme additionally if desired.
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Benefits of the EPF Scheme
The employees offer multiple benefits for both employees and employers. The detailed breakdown of advantages is as follows:
Benefits for Employees:
- Saving for retirement is the best way to secure your future financially. So, through regular contributions or interest, you can create a corpus for your post-retirement life.
- Receive a monthly pension from your accumulated EPF corpus after retirement. This will become a source of income stream in your golden years.
- The interest earned on your contributions qualifies for tax deductions. This reduces your taxable income and lowers your tax burden.
- The EPF forces employees towards a saving plan. This promotes financial discipline and helps you build wealth over time.
- The employees can withdraw some amount from the corpus, for medical emergencies, child education or housing needs to provide financial support.
Benefits for Employers:
- Help companies in better employee retention and reduce turnover costs.
- By offering EPF as a part of the compensation package, the businesses can make themselves more attractive to talented professionals.
- Employers can improve employee morale and job satisfaction. This leads to more productivity of employees.
- The contribution of the employer to EPF provides tax deductions and reduces corporate tax liability.
- Through this, the employees become financially independent after retirement. That lowers the burden on government social security programs in the long run.
- Companies with a certain number of employees are mandatory to contribute to EPF. Help comply with government regulations and avoid legal penalties.
Employee Provident Fund Organisation (EPFO)
The Employees’ Provident Fund Organisation (EPFO) is an agency in India, that manages the Employee Provident Fund (EPF) scheme. It is a statutory body established by the Government of India under the Ministry of Labour and Employment.
The organisation is responsible for administering and managing the EPF scheme for eligible employees across India. Acts as a trustee for the funds contributed by employees and employers. The EPFO board administers a contributory provident fund, pension scheme and insurance scheme in the workforce engaged in the organised sector in India.
Functions of EPFO
The management or regulations of the EPF scheme is done by EPFO. It includes setting eligibility criteria, contribution rates of employees and employers, account creation and maintenance, investing and final withdrawal. Below are the other key functions of the Employee Provident Fund Organisation:
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- The primary function is to collect contributions from employers and make sure that it credited to the individual’s account.
- Keep the records of contributions, interest earned and the account balances for EPF subs cribers.
- It provides benefits such as retirement benefits, monthly pensions, and partial withdrawals in some conditions.
- It takes initiatives to promote awareness and educate both employers and employees about the EPF scheme, its benefits, and its significance.
- The EPFO checks that the employer must comply with the EPF Act and associated regulations by conducting inspections and imposing penalties where it is necessary.
Reasons Behind EPF Withdrawl
- The employee can withdraw money from the EPF account only after retirement and not during employment.
- You can withdraw a partial amount by applying online, but it is applicable in the case of medical treatment, higher education, purchase of a home, or construction. The reason can be anything. know more about Partial withdrawl and Complete withdrawl.
- The EPF organisation allowed the withdrawal of 90% of EPF corpus 1 year before retirement. However, the person should be more than the age of 54 years.
- In case you get unemployed before retirement or retrenchment, then you are allowed to withdraw your EPF corpus.
- You can withdraw 75% of your PF corpus after one month of unemployment. And, the remaining 25% will be transferred to a new EPF account as you find new employment. Remember, the withdrawal of the EPF corpus is only applicable if you contribute to the EPF account for five continuous years.
- In case you want to withdraw your EPF corpus before maturity, then the TDS will be deducted. But not in the case, if the amount is less than Rs. 50 thousand. The deduction will be 10% if a PAN card is submitted and 30% in case of non-submission of a PAN card.
- To withdraw the EPF amount, you have to declare your unemployment status online. If your Universal Account Number and Aadhaar are linked then you can do this process directly through EPFO.
Conclusion
To conclude, the EPF offers a win-win situation for both employees and employers. As its benefits are beyond just building a retirement corpus, it contributes to financial security, tax advantages, and overall benefits for individuals and organizations.