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All about EPF (Employee Provident Fund)

Navdisha Sehgal
03 May, 2021 03 May, 2021
All about EPF (Employee Provident Fund)

In India, EPF is commonly known as PF, which is a retirement savings scheme that was introduced by the Indian Government for the benefit of all salaried employees. The EPF (Employee Provident Fund) is governed by the EPFO, i.e., Employee’s Provident Fund Organization.

It is a voluntary contribution of the employee towards their retirement fund. EPF (Employee Provident Fund) was introduced to encourage the employees to develop a habit of saving for future.

In this article, we will look into the concept of EPF (Employee Provident Fund) in detail.

What is EPF (Employees Provident Fund)?

EPF in general is known as PF. The terms EPF & PF both are acronyms and can be used interchangeably. The EPF is Employees’ Provident Fund, scheme that was introduced under the Employees’ Provident Fund & Miscellaneous Act, 1952.

EPF is managed & administered by the Central Board of Trustees that consists of representatives from Government, Employers & employees. The Board is assisted by the Employees’ Provident Fund Organization in the activities. The Ministry of Labour & Employment manages the EPFO & it comes directly under the direct jurisdiction.

The scheme aims to promote the savings that can be used post – retirement by several employees all over the country. EPF or Employees’ Provident Fund is the funds collected by the contribution by employer & his employee on a monthly basis.

12% of the employee’s salary is contributed by the employer & employee to the EPF. The employee’s salary includes Basic salary & dearness allowance. The contributions made earns a fixed rate of interest set by the EPFO. The amount received of the interest on the deposit is tax – free, i.e., the employee may withdraw the entire fund without paying any tax on it.

What are the benefits of EPF (Employees Provident Fund)?

Here is a list of benefits from the EPF scheme:

  • It offers a pre – fixed interest on the amount deposited under the EPF India.
  • In the longer run, the amount deposited in the EPF helps to develop a healthy retirement plan that ensures financial stability after the retirement.
  • During the emergent situations, one can withdraw the amount deposited in the EPF by following the procedure laid down.
  • The contribution by an employee towards the PF account is deemed eligible for tax exemption under section 80C of the Income Tax Act, 1961. The tax benefits available to the EPF scheme ensures high earnings to the members.
  • The members of EPF are entitles for partial withdrawal that means the amount can be withdrawal from the PF account to meet specific requirements that includes higher education, medical treatment, etc.

Why is EPF (Employees Provident Fund) useful?

The amount contributed by the employer & employee towards the EPF is combined together& it generates interest of 8% to 12%, as determined by the Indian government. The current annual interest rate of the EPF is 8.5%.

As long as a person is employed & contributes towards the PF & the amount in the PD account continues to gain interest on the amount. By the time, a person retires, there is a large amount that can be used for post- retirement.

In case of job change, the EPF information must be updated with the new employer & provide them with the EPF number so that they can contribute towards the EPF.

What are the types of EPF (Employees Provident Fund)?

What are the types of EPF (Employees Provident Fund)?

In India, there are basically 4 types of EPF schemes, which are:

  • Statutory Provident Fund (SPF)

SPF is only for the workers that are employed in the government or semi – government sector like Railways, Educational institutions (government run), etc.

  • Unrecognized Provident Fund (UPF)

The scheme is not approved by the Income Tax commissioner or the PF commissioner.

  • Recognized Provident Fund (RPF)

The scheme is applicable on the organizations that employees 20 or more employees & can be voluntarily opted for.

  • Public Provident Fund (PPF)

A person whether employed or not can contribute towards the PPF scheme. The salaried employees has the option to contribute in PPF scheme apart from the EPF (Employee Provident Fund) scheme.

Features of types of EPF schemes

S. No.Types of EPF scheme
1Statutory Provident Fund (SPF) Maintained by the Government or semi government bodies, i.e., railways universities, etc.Contributions made by the employer are exempted from the income taxes for the year in which the contributions are made.The contributions by employee can claim deduction under section 80C of the income tax act.The interest credited during a financial year is not an income & thus, is exempted from income tax.The redemption amount is exempted from income tax, during the retirement time.In case of termination of the PF account, the withdrawal amount must also be exempted from taxes.
2Unrecognized Provident Fund (UPF) These are not recognized by Income Tax Commissioner.The contribution made by the employer is not an income in the year of investment & not taxable in that specific year.Tax deductions available under Section 80C is not available on employees’ contribution.At the time of redemption or retirement, the contribution made by the employer & the interest on it is considered as salary income & is taxable.However, the contribution by the employee is not taxable & the interest on employees’ contribution will be charged under income from other sources.
3Recognized Provident Fund (RPF) The scheme is applicable on the organizations that employees 20 or more employees & can be voluntarily opted for.The employer can either join the government scheme by the PF commissioner or can manage a scheme by creating a PF trust that has to be approved by the Income Tax Commissioner.The tax deduction is available under section 80C for the contributions by the employee.The interest earned up to 9.5% is tax free & if the interest exceed 9.5% then it is taxable.
4Public Provident Fund (PPF) It is a long term saving scheme to help people to save amount for their future. The PPF account can be opened in any post office or banks such as ICICI, SBI & HDFC. The minimum contribution under the scheme is Rs. 500 & Rs. 1, 50,000 per annum is the maximum contribution that can be made. 15 years is the duration of the scheme.PPF can serve as a retirement plan or savings plan for those who do not come under the pension scheme.The PPF & the interest earned is exempted from tax under section 80C.

Tax treatment of the EPF (Employee Provident Fund)

ParticularsRPFUPFSPFPPF
Employer’s contributionContribution up to 12% is exempted from tax.The contribution above 12% will be considered as employee’s income.Not taxableNot taxableNot taxable
Employee’s contributionDeduction under section 80 CNo Deduction under section 80 CDeduction under section 80 CDeduction under section 80 C
Interest on PFInterest up to 9.5% is not taxable.Interest above 9.5% will be considered as income from salary and is taxable.Not taxableExempted from taxExempted from tax
Withdrawal of amount at time of retirementExemption from tax subject to certain conditionsContribution from employer & interest thereon is taxable under Income from salaries.Contribution by employee is not taxable & the interest earned thereon is taxable under Income from other sources.Exempted from taxExempted from tax

How to register for EPF (Employees Provident Fund)?

These are the steps to be followed to register for EPF (Employees Provident Fund):

  • Visit the official website of EPF[1].
  • Then go to the section of ‘establishment registration’, a new page will appear with ‘Instruction manual’. The instruction manual explains the process to be followed for employer registration to be done with a DSC of the employer, which is mandatory for new registration.
  •  Then accept the instruction by clicking on the checkbox & fill in the details to register.
  • The account needs to be activated through the e-link sent on the registered email id. The requisite documents are to be uploaded.
  • The ones who are already registered can log in using the UAN (Universal Account Number).

What is the eligibility criteria for EPF (Employee Provident Fund) registration?

The eligibility criteria for EPF registration is:

  • The employees must be an active member of the scheme to avail the benefits under the scheme.
  • The employees of an organization are directly eligible to avail the Provident Fund, Insurance benefits & Pension benefits since they join the organization.
  • An organization that employed 20 workers minimum is liable to give EPF benefits to the workers.
  • However, the scheme does not cater the needs of people residing in Jammu & Kashmir.

Conclusion

The EPF (Employee Provident Fund) scheme is basically a retirement benefit, wherein the employees of an organization registers themselves & contributes a small portion of the monthly salary in the EPF that can be used after the person retires or in case of emergency.

Read our article: How to Maximise PPF returns accruing to your PPF account

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