EPF – Employee Provident Fund

Employee Provident Fund (EPF) is a very good saving plan for all the salaried individuals.

The objective of an EPF is that it is an investment option for salaried employees that help the employees after retirement. EPF is a retirement benefit option available for every salaried individual.

If you are a salaried employee then a part of the money from your salary along with the equal contribution from the employer for savings which can be availed when you switch a job or on retirement.

Some companies have a fixed deduction of Rs 1800 p.m and in some companies, it will be 12% of the salary.

This saving tool is known as Employee provident fund or EPF

So here I will be discussing the best EPF option to choose, what are the rules, the benefit of EPF, EPF withdrawal process, EPF calculation

EPF or Employee Provident Fund Rules

EPF is applicable for the companies which are having the employees more than 20 employees, such companies need to deduct EPF amount from the salary of the employee and also some portion of the amount as an employer contribution and deposit the same into PF account.

If the employee salary is less than Rs.15000 it is compulsory to open an EPF account.

These benefits are given to the employee by an employer because it gives long term retirement plan to its employees.

Benefits of EPF

1. High-Interest rate 8-9%, currently it is 8.65% and the interest rate keeps changing each quarter every Financial year. You can check for the updated interest rate through online on the EPF portal.
2. Tax-free savings under EEE ( Exempt, Exempt, Exempt). No Tax on the amount invested and no tax on the amount withdrawn.
3. Low Risk as there will be a backup from the government. This is the reason why EPF is the best investment component. If you withdraw the amount before 5 years then you will not be eligible for tax benefits. So one should ideally not withdraw the amount if he or she is quitting the job instead transfer the same account to the next employer
4. Life Insurance ( EDLI) – If an EPF contributor dies in meantime, the family will get the corpus amount as the relief.

EPF is accessible universally through a Universal Access Number or UAN login number

You need to open this EPF account only once which is transferrable to the next employer.

Click here to Check EPF Balance in 6 Easy Steps Through Umang App

EPF Withdrawal

• 100% of the invested amount is allowed in EPF withdrawal only at the time of retirement that is at the age of 58 years.
• 90% of the invested amount is allowed in EPF withdrawal that is at the age of 57 years.
• If at all you want to withdraw EPF before the retirement you can withdraw only the partial amount in case of medical emergencies, Home loan repayment, purchase of a land/house, house construction, marriages such as self-marriage, children marriage or siblings marriage
• This partial EPF withdrawal is allowed only after the completion of 5 years, 7 years & 10 years depending upon the clauses.
• One particular case for 100% EPF withdrawal is when you resign a job you are unemployed for 2 months+, this amount will be taxable if EPF withdrawal is made before 5 years as I mentioned earlier in this article.

Now let me tell you about the calculation of EPF

EPF is applicable on ” Basic + Dearness Allowance” = “Salary”

Dearness Allowance is not available in Private Sectors and only the Basic salary is considered or the EPF calculation

In the government sector, the Basic & Dearness allowance both are considered for the EPF calculation

An equal contribution has to be made by employee and employer

Let’s understand the percentage of employee and employer provident fund contribution

If the company or an organization employee strength is greater than 20 employees the percentage of contribution from an employee will be 12% and the contribution from the employer will be 3.67% for EPF and 8.33% for EPS.

The EDLI that is “Employee Deposit Linked Insurance”, which is a contribution from the employer will be 0.5% and the EPF Admin Fees which is again a contribution from the employer will be 0.5%.

If the company or an organization employee strength is less than 20 people the percentage of contribution from an employee will be 10% and the contribution from the employer will be 1.67% for EPF and 8.33% for EPS.

EDLI contribution & EPF Admin charges will be 0.5%.

We will go further deep with the calculation with 2 Scenarios

Scenario 1: Where the salary is less than Rs. 15000 (S1) of an employee

For example, if the salary of an employee is Rs. 10000

Employee contribution

EPF – 10000 x 12% = 1200

Employer contribution

EPF – 10000 x 3.67% = 367

EPS – 10000 x 8.33% = 833

EDLI – 10000 x 0.5% = 50

EPF Admin – 10000 x 0.5% = 50

Scenario 2: Where the salary is more than Rs. 15000 (S1) of an employee

In such a case, there will be two options for the employer to choose from

Option 1: The employer may go with Minimum EPF

For example, if the salary of an employee is Rs. 40000, the provident fund contribution will be calculated only for 15000 which is the Min amount

Employee contribution

EPF – 15000 x 12% = 1800

Employer contribution

EPF – 15000 x 3.67% = 550.5

EPS – 15000 x 8.33% = 1249.5

EDLI – 15000 x 0.5% = 75

EPF Admin – 15000 x 0.5% = 75

Option 2: If an employer chooses to give more benefits to the employees then the employer may go with Full EPF

There are further 2 more options in Full EPF

Option A: For example, if the salary of an employee is Rs. 40000

Employee contribution

EPF – 40000 x 12% = 4800

Employer contribution

EPF – 12% x 40000 – 8.33% x 15000 = 3550.5

EPS – 15000 x 8.33% = 1249.5 (Here the EPS has to be calculated for 15000 only which is a CAP and the remaining money will be added back to EPF that is EPF + EPS)

EDLI – 40000 x 0.5% = 200

EPF Admin – 40000 x 0.5% = 200

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Click here to Check EPF Balance in 6 Easy Steps Through Umang App