Employees Provident Fund

 

Introduction: Every country has provisions for social security to provide regular income to the retired and disabled. In India, the Employees' Provident Fund (EPF) is one of the two major social security programs, the other being the Employee State Insurance (ESI). EPF is a government-backed program aimed at providing financial security to retired employees. Employers, along with employees, are required to contribute to the EPF account, and the contributions made and the amount earned are kept tax-friendly to promote the scheme. Understanding EPF is essential to know the benefits it offers against a meager contribution and to gain a better understanding of the Cost to Company (CTC) and the in-hand salary. In this topic, we will discuss all aspects that have been a matter of confusion and curiosity among employees about this social security benefit.

 

 

1. Applicability:

EPF in India is regulated by EPFO (employees provident fund organization) and the provisions governing it are laid out in EPF Act, 1952. Just because an individual is working as an employee doesn’t necessarily mean that he is automatically covered under this social security benefit. An employee to be covered under the EPF scheme, on fulfilment of the following:

 

* The employer should be registered with EPFO; and

* Basic & DA component in salary should be up to Rs. 15,000 monthly;  or

* The employee should have opted for this scheme, if the Basic & DA component is exceeding Rs. 15,000 monthly. He shall be compulsorily covered in future after he once opts for it and the option shall no longer be available. The registration of employer with PF is mandatory if the employer employs 20 people or above. In case of lower employees, the employer can still voluntarily register himself and the provisions of this act shall start applying.

 

2. Rate Of Contribution: Once the employee is covered under EPF, both employers and employees are required to make contributions on a monthly basis at the following rates:

 

 

Contribution	Employee's contribution	Employer's contribution
EPF	12%	Difference between employer's EPS and Employee's EPF
EPS	Nil	8.33%
EDLI	Nil	0.50%
Admin Charges	Nil	0.50% (Minimum Rs. 500 or 75 if no contribution)

 

    

 

 

   

   

 

    > Lower Rate Of Contribution:

Employees are required to contribute 10% instead of 12% in the following cases:

 

* Where employees are fewer than 20 and the employer has taken voluntary registration.

* Employer is a sick industrial company as per BIFR.

* Where the employer’s losses are up to its net worth or higher.

* Employer is selling jute, beedi, brick, coir, guar gum.

 

 

    > Higher Rate Of Contribution:

In cases where the Basic and DA component of the employee exceeds Rs. 15,000, neither party is under any obligation to make contributions on the amount earned beyond Rs. 15,000. The employee may choose to contribute a higher amount as long as a joint request form is filed with EPFO. The employer can restrict their contribution or match their contribution to the employee's.

This wage limit of Rs. 15,000 is not applicable in the case of international workers. It means that international workers shall be mandatorily required to contribute to EPF on the whole basic and DA earned by them.

 

 

    > EDLI, EPS & Admin Charges :

EDLI is the Employee's Deposit Linked Insurance Scheme. The amount contributed under this scheme serves as the premium for a life insurance cover of Rs. 7 lakhs in the event of the employee's death during their service tenure. Amounts contributed under EPS constitute the Employee Pension Scheme, which provides for regular pension payments after the employee's retirement (at 58 years of age). This amount may be redeemed in a lump sum if the service tenure is less than 10 years. Administrative charges are mandatorily required to cover the administrative expenses incurred by EPFO in managing the EPF scheme.

The contributions mentioned above, falling under the employer’s column, form part of the CTC, though they may not be included in the gross salary and the in-hand salary.

To read more about CTC, gross and in-hand salary, refer to CTC vs. In-hand salary.

 

 

    > Full withdrawal:

Full withdrawal of the EPF balance can be made at the time of retirement. Another instance where an individual may withdraw the full amount is when they are unemployed for an extended period of time. In this case, they may withdraw 75% within 1 month of unemployment and the remaining 25% at the end of the second month.

 

    > Partial withdrawal:

Partial withdrawal of EPF can be made in the following circumstances:

 

 

Reason of withdrawal	Withdrawal Limit allowed	Years of service required	Other conditions
Medical purposes	Lower of following:  1. Six times monthly basic salary  2. Employee's contribution and interest	Nil	Medical treatment self, spouse, children or parents
Marriage	50% of employee's share	7 years	Marriage of self, siblings and children
Education	50% of employee's share	7 years	Education of self or children (post matriculation)
Purchase of land or purchase/construction of house	For land: 24 months Basic+DA  For house: 36 months Basic+DA  These limits shall not exceed the expense	5 years	1. Asset should be held by employee or jointly with spouse  2. Allowed only once in a lifetime  3. Construction to begin within 6 months of first installment and finish within 12 months of last installment.
Home loan repayment	Lower of following:  1. 36 months Basic+DA  2. Total corpus in account  3. Outstanding principal and interest	10 years	1. Asset should be held by employee or jointly with spouse  2. Furnishing specified documents to EPFO  3. Accumulation of self and spouse should be more than Rs. 20,000
House renovation	Lower of following:  1. 12 months Basic+DA  2. Employee share with interest  3. Cost of renovation	5 years	1. Asset should be held by employee or jointly with spouse  2. Can be availed twice, first time after 5 years of completion of house and another after 10
Partial withdrawal before retirement	Up to 90% of corpus	Nil	Withdrawal should be before 1 year of retirement/ superannuation after reaching 58 years of age

 

 

 

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