Employees’ Provident Fund

Firstly, “The Employees’ Provident Funds Ordinance in 15th November 1952, to provide for the institution of provident funds for employees in factories and other establishments. It was replaced by the Employees’ Provident Fund Act, 1952. Employees’ Provident Fund bill introduced in Parliament in 1952. Now It is referred to as the Employees’ Provident Fund & Miscellaneous Provisions Act,  1952.  The Act and Schemes framed there under are administered by a tri-partite Board known as the Central Board of Trustees, Employees’ Provident Fund, consisting of representatives of Government (Both Central and State), Employers, and Employees.

Employees’ Provident Fund & Miscellaneous Provisions Act,  1952

An Act to provide for the institution of Provident fund, Pension fund and Deposit-linked insurance fund for employees in any establishments. The Establishment with 20 to more persons are employed must be contributing to EPFO.

Three Schemes

  1. EPF Scheme 1952
  2. Pension Scheme 1995 – EPS
  3. Insurance Scheme 1976 – EDLI

EPF Scheme 1952

  • Employees’ Provident Fund is a retirement benefits scheme in which employees received interest on funds deposited in the EPF account, contributed by both employer/company and employee.
  • The employer deducts 12% of the employee’s salary (basic + dearness allowance) directly every month for a contribution towards EPF
  • EPF Account is transferable when Member change of employer/company.
  • A contribution should be paid by employer/company and employee until employee retirement age. E.g. Companies retirement age differs,  i.e. 58  or 60 years.
  • It is a compulsory scheme where an employer with 20 or more employee.

Employee’s contribution

  • The employer deducts 12% of the employee’s salary (basic + dearness allowance) directly every month for a contribution towards EPF.

Employer’s contribution

  • Similarly, the employer also contributes 12%
    • 8.33% to EPF
    • 3.67% to EPS
    • 0.5% to EDLIS
  • Admin Charges
    • 1.1% to EPF
    • 0.01% to 0.01%

Employees’ Pension Scheme 1995 – EPS

  • Members of EPFO are automatically enrolled for EPS.
  • Members must complete the 10 years of services to avail of this scheme.
  • EPS service Account is also transferable like EPF Account.
  • EPS contribution is stopped once a member attained 58 years even working in a company (where retirement age is 60).
    • EPS Account automatically updated PPO.
  • Lifelong pension is provided to the EPFO member.
  • In case the member passes away, a pension is provided to the family members.
    • Widow/Widower will get lifelong pension.
    • Children will get a pension up to 25 years.
    • A disability child will get a lifelong pension.
  • Members not complete the 10 years of services, then complete EPS contribution amount is withdrawn in a final settlement.

Pension Calculation

Monthly member’s pension = (Pensionable salary x Pensionable Sevice) / 70

Pensionable Salary = average monthly salary in the last 12 months

Pensionable Service = actual service period of the member

Insurance Scheme 1976 – Employees’ Deposit-Linked Insurance Scheme (EDLI)

  • Members of EPFO are automatically enrolled for EDLI.
  • It is an insurance cover by EPFO for employees in the private sector. The nominee received a lump-sum payment in the event of the death of the person insured, during the period of the service. 

Claim Amount Calculation

{Average Monthly Salary of the Employee(death of the person insured) for the last 12 months (capped at 15,000/- p.m.) x 30 } + Bonus Amount (Rs. 1,50,000/-)

therefore, the maximum payout under EDLI is capped at Rs. 6,00,000/-

EPF, EPS and EDLI Contribution

Features EPF EPS EDLI
Employee Contribution 12% Nil Nil
Employer Contribution 8.33% or Rs. 1,250/- 3.67% 0.50 or max Rs. 75/-
Deposit Limit Predetermined, fixed rate Maximum of Rs.1,250 NA
Age Limit for withdrawal Not required 1. 10 years of minimum service and 50 years of age for early pension. 2. 58 years of age for regular pension. NA
Interest Rate 8.5% p.a. NA NA

Important Links

Employees’ Provident Fund Organisation (epfindia.gov.in)

EPFO || FAQ (epfindia.gov.in)

EPFO Press Release

228th meeting of CBT, EPF held at Srinagar, J&K Press Release – 04 Mar 2021

Voluntary Provident Fund

  • It is an extension of EPF.
  • Employee wants to contribute higher than 12% in EPF which means employee share.
  • VPF Contribution amount is maintained in the same EPF account.
  • Interest is the same as EPF.  
  • There is no limit on the amount of VPF contribution.
  • Total of EPF (12%) and VPF(88%) contribution will be 100% of monthly basic pay.

How to enrol in VPF

  • Simply intimate to HR department/account department, i.e., Individual willing to contribute an additional portion of their income in their EPF account.
  • An individual need to fill out a simple VPF application form that contains Name, Employee ID, and percentage of VPF contribution.

Taxation

  • There is no tax if withdraw after 5 years and at the maturity including its interest acquired.
  • Withdraw PF/VPF amount within 5 years should be taxable.
  • Budget 2021 has a proposal to limit the exemption on return earned on VPF. As per the proposal, if the investment in VPF and EPF put together is above Rs 2.5 lakh in a financial year, the returns earned on the contribution above Rs 2.5 lakh will not be exempted from tax.

Interest

  • The Central Board recommends 8.50 % rate of interest to its subscribers for the year 2020-21 (Interest rate is changeable).

Conclusion

  • It is the best and safe investment under the government scheme.
  • It is transferable to a new employer.
  • Every individual should have EPF, EPS, EDLI and enrolled in VPF for Good Wealth Creation at the retirement age.
  • Don’t withdraw an amount from EPF unless emergency.
Boat Lifestyle [CPS] IN
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