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We are constantly looking for the best options to invest our money. Proper allocation of funds is essential for maintaining and upgrading one’s standard of living, as well as ensuring that life is comfortable after retirement. When it comes to creating a retirement corpus as well as availing tax benefits, one of the most important schemes to know about is EPF or Employees Provident Fund.
EPF is a government-administered scheme for company employees. In this fund, employees need to deposit a certain amount of money from their monthly salaries, and an amount similar to this amount is matched by the employer. Interest is paid by the government on both, the employer and the employee contributions.
The amount of interest received on the deposits as well as the actual deposited amount is tax-free. Withdrawals made at maturity or after completion of five years are also 100% tax exempt.
The scheme is administered and managed by the Central Board of Trustees. This consists of representatives from three parties, namely, the government, employers, and the employees. The Employees Provident Fund Organisation (EPFO) assists this board in its activities. The EPFO works under the direct jurisdiction of the government and is managed through the Ministry of Labour and Employment.
This Employees Provident Fund Organisation is one of the world's largest social security organisations. It maintains up to 17.14 crore accounts. Its income security programme has greatly contributed to the economic and social well-being of the nation. One can look at it as a safety net that enables employees to stay secure in their retirement years.
It’s clear that EPF is a valuable scheme that has benefited countless employees. For many, it is a form of enforced saving under a government plan that has enriched them in later years. For the salaried class, the tax benefits, pension, corpus at retirement, and insurance benefits make EPF important.
EPF has various features, such as the interest rate, withdrawal options, transfers, online servicing options, and more. Here’s a look at the key points you should know, and that will help in understanding as well as maintaining your EPF account.
The interest rate is set by the Employees Provident Fund Organisation (EPFO). The Ministry of Labour and Employment analyses the present economic conditions and decides the interest rate provided to members for the next financial year. For the year 2018-19, the interest rate is 8.65 %. This is a 0.10 % increase from the 8.55 % EPF interest rate announced for 2017-18.
The interest is calculated on the basis of the monthly running balance of the employee. The EPF accounting year starts from March and ends in February, and the government credits interest to the accounts on April every year.
UAN, or Universal Account Number, is a unique 12-digit permanent number allotted to employees by the Employee Provident Fund Organisation. The UAN card contains information about the universal account number and the KYC details (if verified by the employer) on the front, and the rear side of the card has the member identification number and EPFO help desk contact numbers.
The UAN ensures that all PF accounts of the employee are genuine, and it is also used as a record of job changes. This has created several advantages. It makes accessing EPF account services, such as withdrawals, checking the balance, and PF loan application simple. The UAN of an employee remains the same throughout his or her career. In case of a job change, the EPFO allots a new member identification number, which is linked to the UAN that is the same as first assigned.
If you want an EPF statement for any reason, such as loan security, or visa application, for example, you can download one instantly by logging on the website using member ID or UAN. Also, with UAN, the employer involvement has been reduced. The EPF of the old organisation can be transferred to the new account, once the KYC verification is complete.
Both employee and employer have to contribute equally towards the EPF scheme on a monthly basis. According to EPF rules, employees whose pay is more than Rs.15,000 per month at the time of joining are not eligible, and they are called non-eligible employees who can opt in if they so desire. Eligible employees have to pay 12 % of the total of basic pay and dearness allowance towards their EPF account of the employer’s contribution of 12%, 3.67% goes to EPF, and the balance 8.33% mainly goes towards an Employee Pension Scheme.
For contributions made towards the Employees Pension Scheme by the employer, the employee shall not receive any interest, but a pension is paid out of this amount after the age of 58. Where group insurance cover is not present, the employer is also required to make certain contributions towards an employee's life insurance. This ensures that the employees are properly insured, which is a valuable feature of EPF.
Such contribution rates are applicable for establishments having more than 20 employees. However, the rate is fixed at 10% for organisations with less than 20 workers, for certain types of industries, as well as for companies operating under prescribed losses and limits.
Nowadays, so many services that we all make use of every day are available online, and EPF is no exception. The online facilities introduced by the EPFO have made the process of managing an EPF account much simpler and quicker.
First of all, the employee will have to register on the EPF member portal and create a password. Then, he or she can log in to his or her EPF account with UAN for several purposes. EPF withdrawal, fund or account transfer, KYC updating, and balance enquiry are just some of them.
All online services are free of cost and can be accessed 24 hours a day, which makes it beneficial for employees. Remember, though, that PAN and Aadhaar have to be submitted or updated into the online account before applying for an online claim or withdrawal.
An employee’s EPF account is linked to the company he or she is working in. What happens in the case of moving to a new company? When an employee moves to a new job, the new company has to open a new PF account in his or her name. The employee has to transfer the fund from the previous EPF account to the new one by filling out Form 13. On transfer of the account, the new employee will be communicated by SMS on his mobile number linked to the UAN and by e-mail, if registered.
To make this process easier, the EPFO is testing the automation of EPF transfer on changing jobs on a pilot basis, and the facility for all subscribers is expected to be launched soon. For transfer, the employee will have to fill a composite Form 11.
What are the options for an employee who needs money during his period of service? This can happen on crucial occasions over the years, and it is, therefore, important to know one’s options in the case of EPF.
As noted, though the funds in the EPF scheme are primarily meant as an aid during retirement, there are provisions made for premature withdrawals under certain circumstances. EPF can be completely withdrawn when the employee retires from employment or if they are unemployed for two months or longer.
Partial withdrawal is also possible, subject to certain criteria such as the number of years the employee has been in service and the reasons for such withdrawal. These are to do with medical expenses for self, spouse, children, or parents. The other reasons could be for marriage purposes and other property-related issues, such as purchasing, constructing a house, renovating, or reconstructing a house.
Employees can also withdraw 90 % of the EPF corpus one year before retirement, provided the person is not less than 54 years old. Withdrawal of EPF can be done by submission of a physical application or submission of an online application. The EPFO has made it mandatory to file claims online when the withdrawal amount exceeds Rs.10 lakhs. In order to file claims online, the member must get KYC documents such as Aadhaar and PAN digitally signed by the concerned authorities. Forms 31, 19, and 10 C need to be submitted.
In order to make the process of EPF funds operations and transfer more convenient and simple, the EPFO has decided to integrate the National Payments Corporation of India (NPCI) payment platform with its interface.
The NPCI is an umbrella organisation for operating retail payments and settlement systems in India. It was set up with the guidance and support of the Reserve Bank of India (RBI), Indian Banks Association (IBA) and has made a significant impact on the retail payment systems in the country.
It allows all Indian banks and financial institutions to participate in electronic payments. This EPF integration will also ensure that transactions charges come down and that the EPFO will be able to transfer funds on the same day itself.
This is another convenient feature recently introduced by the government that makes using EPF services smoother and easier. It depends on using an object that almost all of us carry with us, a mobile phone.
Employees can now download and use the phone app titled UMANG: Unified Mobile Application for New-age Governance. This mobile app is designed to provide individuals with access to a range of central, state, and local government services using only a single platform. It has five sections, employee-centric services, general services, employer-centric services, pensioner services, and eKYC Services. For EPF, employees can locate establishments, EPFO offices, track claim status, enquire about account details via SMS, and so on. There is also a live chat option for quick feedback and clarifications.
Employees can also link their Aadhaar number with their UAN through the app itself. These benefits make downloading and using the UMANG app a must for employees with EPF accounts.
The EPFO portal is the employee’s interface when availing online services linked to his or her EPF account. As the country’s largest social security organisation, EPFO has made provisions for a variety of facilities through this single web portal.
Once the UAN is activated, employees can log in using UAN and password to access the online services. There is an e-sewa service provided in the member portal. This helps employees with information and education on facilities like UAN Card download, KYC information, online updating, EPF account passbook linked to UAN, and more.
Via this portal, members and employers can also raise complaints and grievances, if any, with respect to withdrawal, transfer and pension settlement. These grievances can then be quickly followed up and settled.
VPF, or voluntary provident fund, is linked to EPF, but has some distinct features of its own. It allows employees to voluntarily contribute to their EPF account over and above, the compulsory contribution as per the EPF guidelines.
As with EPF, VPF individuals can also withdraw from their accounts if certain criteria are met. While EPF is compulsory in organisations employing over 20 people, with VPF, an employee has to voluntarily approach the organisation and advise them to raise a request for an additional contribution. In fact, the maximum contribution allowed under VPF is up to 100 % of the basic salary and dearness allowance. Contribution towards the VPF is eligible for tax deduction under Section 80C, subject to an assigned limit. Unlike for EPF, the employers are under no obligation to contribute to their employees’ VPF portfolio, and monthly additions here only are from the employee. It is a simple and easy procedure, and there are many who freely opt for this after seeing the long-term advantages.
VPF also has withdrawal restrictions, and full withdrawal is possible only at the time of retirement. The existing EPF account also serves as the additional VPF account. The interest rate of VPF is the same as that of EPF, which is at present 8.65% per annum.