Everything you need to know about EPF

Is having an EPF account compulsory if I am salaried?

No. Having an EPF account is not compulsory as a salaried employee. If you do not have an EPF account to begin with your company will give you an option to opt out of the EPF scheme if you wish to do. However, once you have an EPF account you will have to continue contributing to it even if you switch jobs.

I am not salaried, but I want to open an EPF account, can I?

No, you cannot open an Employee Provident Fund (EPF) account if you are not a salaried employee. EPF is a social security scheme only for salaried employees.

What benefits does EPF offer?

The Employees' Provident Fund (EPF) is a retirement benefits scheme that offers several benefits to employees. Here are some of the key benefits of the EPF:

• Retirement savings: The EPF is a retirement savings scheme that allows employees to save a portion of their income towards their retirement. The contributions made by the employee and employer, along with the interest earned on the contributions, help to build a substantial corpus that can be used to support the employee's retirement.
• Tax benefits: The contributions made by the employee and employer towards the EPF are eligible for tax benefits under Section 80C of the Income Tax Act. The interest earned on the EPF balance is also tax-free, making it an attractive investment option for employees.
• Liquidity: Employees can withdraw their EPF balance in case of emergencies such as medical expenses, home loan repayment, marriage, education, etc. The EPF balance can also be withdrawn completely on retirement.
• Insurance cover: The EPF also provides an insurance cover to employees under the Employees' Deposit Linked Insurance (EDLI) scheme. The insurance cover is linked to the amount in the employee's EPF account and is payable to the nominee or legal heir in case of the employee's untimely demise.
• Transferability: The EPF account is portable, which means that the account can be transferred from one employer to another. This ensures that the employee's retirement savings are not impacted by job changes.
• Interest rate: The EPF offers a competitive rate of interest, which is declared by the government every year. The interest rate for the financial year 2022-23 has been fixed at 8.1% per annum.

What is my minimum contribution?

The minimum contribution is 12% of your basic salary and is capped at Rs. 1,800/- This means that if your basic salary is Rs. 15,000/- or less, then you have to contribute 12% of it your provident fund. But if your basic salary is more than Rs. 15,000/- then you have to contribute only Rs. 1,800/- compulsorily. You can contribute more than that, up to 12% of your basic salary, if you wish to do so.

How much does by employer contribute?

Your employer has to match your EPF contribution, up to, Rs. 1,800/-

What is the rate of return on EPF?

The current rate of return in the EPF scheme is 8.1%. The rate is generally announced by the government towards the end of the financial year for which the rate would be applicable, that is retrospectively for that year.

What are some other schemes similar to EPF?

If you are not eligible for EPF or are looking for other options you can consider other investment options like Public Provident Fund (PPF), National Pension System (NPS), or other mutual fund schemes for your retirement savings. These investment options also offer tax benefits and can help you build a retirement corpus.

How is interested calculated on my EPF? When is it credited?

The interest on EPF contributions is calculated monthly. However, the interest is credited in lumpsum on the last day of the financial year i.e., 31^st March of each year.

Does every company have to compulsory offer an EPF option?

The EPF scheme is applicable to all establishments that employ 20 or more employees. If you are a self-employed individual or work in an establishment with less than 20 employees, you cannot contribute to the EPF scheme.

Does the employer match my contribution if I choose to pay more than Rs. 1,800/- per month?

Your employer may choose to match your contribution even if its above Rs. 1,800/- a month. However, they are not obliged to do so.

Does the entire amount that I and my employer contribute go to my EPF account?

No. While the entire amount that you contribute goes to your EPF, out of the employer’s contribution of 12%, 8.33% is credited towards the Employee Pension Scheme (EPS) and the remaining 3.67% is credited towards the EPF.

What is the breakup of the employer’s contribution if they contribute more than Rs. 1,800/- towards my provident fund?

If the employer voluntarily contributes more than Rs. 1,800 towards the employee's EPF account, the additional amount is credited to the employee's Voluntary Provident Fund (VPF) account. The VPF is a voluntary contribution made by the employee towards the EPF, and it is similar to the EPF in terms of benefits and rules.

What happens to my EPF if I change my jobs?

If you change your job, your Employee Provident Fund (EPF) account will continue to exist. However, you will have to transfer your existing EPF account balance to your new employer's EPF account or create a new account with the same EPF provider. This is known as PF transfer.

To transfer your EPF balance, you need to fill out Form 13 and submit it to your current employer. Your current employer will then forward your application to the EPF office. The EPF office will then transfer the funds from your old account to your new account.

Alternatively, you can withdraw the entire amount from your EPF account after leaving your job. However, it is advisable to transfer your EPF account balance instead of withdrawing it as it will help you earn interest on the accumulated balance and also ensure the continuity of your EPF account.

What is EPS?

The Employee Pension Scheme (EPS) is a component of the Employee Provident Fund (EPF) that provides pension benefits to employees who are members of the EPF. It is managed by the Employees' Provident Fund Organization (EPFO). The EPS scheme is designed to provide pension benefits to employees after their retirement or in the event of their permanent disability. The pension amount is calculated based on the employee's years of service and the average of the last 60 months' pensionable salary.

To be eligible for pension benefits under the EPS, an employee must have completed at least 10 years of service. However, in the event of an employee's death, a pension is provided to the nominee even if the employee has not completed the minimum service period.

What is the rate of return on EPS?

The EPS is a defined benefit pension scheme, which means that the pension amount is predetermined based on the employee's years of service and pensionable salary.

Under the EPS, the pension amount is calculated based on the average of the last 60 months' pensionable salary and the years of service. The pensionable salary is the basic salary and dearness allowance of the employee, and the years of service are the number of years the employee has contributed to the EPS.

What happens to my EPS if I switch jobs?

If you change your job, your membership in the Employee Pension Scheme (EPS) will continue. The EPS is a portable scheme, which means that your EPS account will be transferred to your new employer along with your Employee Provident Fund (EPF) account.

When you join a new organization, you will be required to fill out a new EPS declaration form and submit it to your new employer. This form will contain details of your previous EPS membership, and your new employer will use this information to transfer your EPS account to their establishment.

The transfer of your EPS account is done automatically by the Employees' Provident Fund Organization (EPFO) and does not require any action on your part. Once the transfer is complete, your EPS account will continue to earn interest as per the prevailing rate of interest declared by the EPFO.

It is important to note that the pension amount under the EPS is determined based on the years of service and pensionable salary. Therefore, changing your job will not impact your entitlement to the pension benefit under the EPS. The pension benefit will be calculated based on the total years of service and pensionable salary earned across all your previous employers.

Are there any other charges that need to be paid?

Yes, there are certain charges associated with the Employee Provident Fund (EPF).

• Administrative charges: The employer is required to pay an administrative charge of 0.50% of the total wages paid to the employees towards the EPF. This charge is meant to cover the administrative expenses incurred by the Employees' Provident Fund Organization (EPFO) in managing the EPF.
• Inspection charges: The employer may also be required to pay inspection charges if the EPFO carries out an inspection of their establishment. The inspection charges are Rs. 200 per day of inspection, subject to a maximum of Rs. 10,000.
• Penalty: The employer may be required to pay a penalty if they fail to comply with the EPF rules and regulations. The penalty can range from 5% to 25% of the arrears, depending on the duration of the default.

It is important to note that the charges associated with the EPF are subject to change from time to time, and the current charges may differ from the ones mentioned above.

What is EDLI?

EDLI stands for Employees' Deposit Linked Insurance Scheme. It is an insurance scheme that is linked to the Employee Provident Fund (EPF) and is provided by the Employees' Provident Fund Organisation (EPFO). The scheme provides life insurance coverage to the employees who are members of the EPF in case of their unfortunate demise while in service.

Under the EDLI scheme, a life insurance cover is provided to the employees' beneficiaries in case of their death while in service. The insurance cover is linked to the amount in the employee's EPF account, and the maximum cover that can be provided is 7 lakh rupees. The insurance cover amount is directly paid to the nominee or legal heir of the employee in the event of their death.

The premium for the EDLI scheme is paid by the employer, and it is calculated as 0.5% of the total amount of wages paid to the employees subject to a maximum of Rs. 75 per month per employee. The premium is calculated on the total wages of all the employees in the establishment covered under the EPF, and the employer is required to pay it to the EPFO along with their EPF contributions.

It is important to note that the EDLI scheme is mandatory for all employers who are members of the EPF. The scheme provides financial security to the family members of the employees in case of their unfortunate demise while in service.

What is the sum insured under the EDLI scheme?

The insurance cover under the Employees' Deposit Linked Insurance (EDLI) scheme is calculated based on the average balance in the employee's Provident Fund (PF) account during the preceding 12 months.

The insurance cover provided under the EDLI scheme is equal to 30 times the average monthly wages (including basic pay, dearness allowance, and retaining allowance, if any) drawn by the employee during the preceding 12 months. The maximum insurance cover that can be provided under the scheme is 7 lakh rupees.

The average balance in the employee's PF account is used to determine the maximum amount of insurance cover that can be provided, as the insurance cover is linked to the amount in the PF account. The EDLI scheme rules stipulate that the insurance cover under the scheme cannot exceed the balance in the employee's PF account, even if the calculated insurance cover is higher. Therefore, the average balance in the PF account is an important factor in determining the maximum insurance cover that can be provided under the EDLI scheme.

Here's an example to illustrate how the insurance cover is calculated:

Suppose an employee has an average monthly salary of Rs. 30,000 during the preceding 12 months, and the balance in their PF account is Rs. 5 lakhs. In this case, the insurance cover under the EDLI scheme will be calculated as follows:

Average monthly salary = Rs. 30,000

Average PF balance = Rs. 5,00,000

Therefore, the insurance cover under the EDLI scheme will be:

30 times average monthly salary = 30 x 30,000 = Rs. 9,00,000

Although the maximum insurance cover under the EDLI scheme is 7 lakh rupees, but the average balance in the account is only 5 lakh rupees, the employee's nominee or legal heir will be eligible to receive a maximum of Rs. 5 lakhs in case of their death while in service.

When can I start withdrawing my EPF balance?

As per the rules of the Employees' Provident Fund (EPF), you can start withdrawing your EPF balance under certain circumstances, which are as follows:

• Retirement: You can withdraw your EPF balance after attaining the age of 58 years. However, you can choose to continue your EPF account after attaining the age of 58 years.
• Resignation: If you resign from your job after completing a continuous service period of 2 months, you can withdraw your EPF balance. However, if you have not completed the continuous service period of 5 years, the EPF balance withdrawn will be taxable.
• Unemployment: If you are unemployed for a continuous period of 2 months, you can withdraw your EPF balance. However, if you have not completed the continuous service period of 5 years, the EPF balance withdrawn will be taxable.
• Disability: If you suffer from a disability that makes you unfit to work, you can withdraw your EPF balance.
• Death: In case of the unfortunate demise of an EPF member, the EPF balance can be withdrawn by the nominee or legal heir.

When do I start getting pension under the EPS scheme?

Under the Employees' Pension Scheme (EPS), you can start receiving a pension after attaining the age of 58 years. However, you can also choose to start receiving a pension as early as 50 years of age, but the pension amount will be lower as compared to if you start receiving the pension at the age of 58 years.

To start receiving a pension under the EPS, you need to fill out a pension claim form and submit it to the Employees' Provident Fund Organization (EPFO) through your employer. The EPFO will then process your claim and start paying your pension as per the rules of the EPS.

Does the nominee get both the insurance amount and EPF balance in case of death?

Yes, in case of the unfortunate demise of an employee who is a member of the Employees' Provident Fund (EPF), their nominee or legal heir will be eligible to receive both the insurance amount under the Employees' Deposit Linked Insurance (EDLI) scheme and the balance amount in their EPF account.