PF Registration

Advantages and Disadvantages of Employee Provident Fund (EPF)

EPF has several advantages for the employees and employer, however, there are some disadvantages. In this article, we will discuss the overall impact of EPF.

What is the Employee Provident Fund (EPF)?

EPF registration is compulsorily for a certain class of companies. Employee provident fund is a fund accumulated by salaried employees for the retirement benefits. In a simple word, it is a retirement plan for all salaried employee. Saving for retirement is the ultimate goal on the financial road that the salaried employee shoots at. And that’s where Employee Provident Fund comes into the picture.

In most of the cases, it’s forced saving that is resisted initially by most employees. But once you get used to that bite out, it works to your advantage. The Employee Provident Fund is maintained by the Employees’ Provident Fund Organisation of India. Any company who have more than 20 employees under him then he shall register with the Employee Provident Fund Organisation^[1].

EPF can be helpful during the emergency or during the short of funds can borrow from funds. Some are the below advantage of the EPF. carries:

Provident Fund Benefits

After Registration under Employee PF Act, the employee of the company has following benefits.

• EPF is divided into two parts which are provident fund and Employee Pension Scheme.
• The subscriber Contribution 12% of basic plus daily allowance goes to the Provident Fund.
• In the case of employer contribution, 8.33% goes to Employee Pension Scheme out of 12%, rest goes to the provident fund account.
• Considering the number of years of service and the average salary drawn by the person gets the pension.
• A retired person gets the lump sum EPS money along with PF.
• The members who complete the age of 58 years and completed 10 years of service without any withdrawal gets the benefits of a pension.
• Member can withdraw from this accumulations to cater to financial exigencies in life – No need to refund unless misused.
• On resignation, the member can settle the account. The member receives his PF contribution, Employer Contribution, and Interest.

Insurance Benefit

• As per Employee Deposit Linked Insurance Scheme if no group insurance scheme in a corporation than the organization shall contribute on monthly basis as a premium. For many people, this may be may be peanuts but members who work in small enterprises, this amount is good enough to help their family survival.

Pension Benefits

• Members get the Pension. On the occasion of the death of member Family of the members gets the Pension.
• Scheme Certificate: The certificate includes services and family details of members. The certificate normally issued to the member who applies for certificate and retired before attaining the age of 58. This is a better choice than Withdrawal Benefit, as a member dies to hold a valid scheme certificate, his family will get the pension.

Withdrawal Benefit

• Member who is not eligible for a pension can withdraw from pension account.
• The calculation of this amount is based only on (i) Last average salary and (ii) Service (Not based on the actual amount available in Pension Fund Account)
• EPFO guarantees pension to members, even if the Employer has not contributed to the Pension Fund.

Death Benefits

• On the occasion of death members get benefits:
• The family entitled to receive Provident Fund amount or to nominee appointed by a member.
• Family can receive Pension or Parents or nominee of Member.
• Capital return of Pension
• Insurance amount to Family.
• A nominee is basically determined as per the information submitted by the member at this office through FORM-2.

Special Occasion where EPF Helps

In many occasions in the family creates an emergency need of fund. In such a case, EPF helps to withdraw money from the account but in the limit specified.

• On Marriage, Education needs for self, child or any sibling

You can withdraw for any of the above situations from your account up to 50% contribution made. These benefits are allowed for three times to member. To avail, the above benefits member should have served at least for seven years and shall have all the valid documents of events.

• On purchase of your Dream House

Member can withdraw from its EPF account for house repair, maintenance of house or repayment of house loan. Members should satisfy the conditioned stated.

If you availed a housing loan and wish to make any repayment, then you can utilize up to 36 months wages from your EPF balance provided you have completed 10 years of service.

Any alteration or repairing your existing house Member can withdraw up-to 12 months wages once only.

For the above benefit member shall complete 5 years of service or for repair 10 years of service.

• On Medical Emergency

Member can get benefits in major surgical operations in a hospital or diseases like TB, leprosy, paralysis, cancer, mental derangement or heart ailment. Member can withdraw up to six times of its salary or the entire contribution made to date, whichever is less. The funds can be utilized for self or any member of the family.

Disadvantages

Despite the advantages and opportunities, most contributors to the Employee Provident Fund can’t reach even the Rs 1 crore milestone. More than 13% of the employee to the ET Wealth survey withdrew their Provident Fund balance each time whenever they changed jobs. Withdrawing from the Provident Fund can be anti-productive on two counts.

• The member withdraws amount which is usually blown away by discretionary expenses and retirement savings are back to square one.
• If the individual withdraws his Provident Fund balance before completing five years then the amount becomes taxable.

Conclusion

In our opening, the eligible company should apply for Employee PF Registration under the act. So that adequate social security can be ensured for everyone.