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Employee Provident Fund

The Employees’ Provident Fund Scheme came in to effect in 1952, taking the place of Employee Provident Fund Ordinance,1951. The jurisdiction of Employees’ Provident Fund and Miscellaneous act,1952 is taken care by Central Board of Trustees which consists of representatives from the government, employers and employees. The Central Board of Trustees is aided by the EPFO which is administered by Ministry of Labour and Employment. EPF aims to facilitate retirement savings for all employees in India. Employees’ Provident Fund is a collection of funds which built through monthly contributions by an employee and an employer. More than 5 crore members are getting serviced by EPFO. Any organisation which is having at least 20 employees, need to be registered with EPFO as required by the law.This act doesn’t apply in state of Jammu and Kashmir.

The amount is contributed to EPF by the fixed rate. Member employees are eligible for the pension, provident fund and insurance benefits under this act as per the three below-mentioned schemes:

  1. Employees’ Provident Fund Scheme,1952

  2. Employees’ Pension Scheme 1955

  3. Employees’ Deposit Linked Insurance Scheme,1976

  4. There are various EPF forms that an employee consider to avail the benefits of provident fund.

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Benefits of EPF Scheme:

  1. EPF helps in tax saving by keeping EPF contribution tax-deductible with respect to section 80C of the Income tax act,1956.

  2. EPF withdrawals at maturity or beyond 5 years, attract zero tax (in case if premature withdrawal is not done) which helps in optimising growth and returns on savings.

  3. As the fund is not easy to withdraw, so by ensuring savings it provides financial security at the time of retirement.

  4. The fund can also be used in emergencies at the time of sudden death,disability or for retrenchment period through premature withdrawal.

  5. For employees who aims for long term investment goals, EPF is the suitable option for them.

  6. In EPF under the act, an employer also contributes to the pension which the employee can use at the time of retirement.

  7. In EPF,employer also contributes for the life insurance cover of employees making them insured, in case there is no life cover.

  8. All EPF accounts can be merged and accessed by employees through single window after introduction of UAN (Universal Account Number), while shifting from one employer to another during job change.

  9. EPF services are also available on new app called UMANG.

EPF Deductions:

An employee provident fund is made up of contributions from the employee and the employer at a fixed rate.For an employee, minimum contribution is set at 12% of pay + dearness allowance from the salary( 12% of 15000).

An employer contribution is also set at 12%(12% of 15000)however; it gets divided between EPF (3.67%) and Employee's pension fund scheme(8.33%). Earlier EPF contribution had been at 12% of 6500.

So, it can be understood as:
12% of salary(basic + DA) contribution = 8.33% to EPS + 3.67% to EPF. Along with which employer also contributes at 0.5 % to EDLI administration cost,1.1% to EPF and 0.01% to EDLI administration cost which makes the total employer contribution at 13.61%.

EPF Interest Rate:

The interest rate for EPF was 8.8% in 2015-2016, which has been changed to 8.65% in 2017-2018 and 8.55% in fiscal 2018-2019. Every year EPF interest rates get altered by the central government in assistance with Central Board of Trustees, who regulates the act in association with EPFO which remain applicable for the whole year referred as the financial year (from April 1st to March 31st ), in which it has been announced. Interest is calculated, but it gets credited by the end of financial year. The credited interest will get added to the April's balance for interest calculation. Interest will not get credited on withdrawn amounts or the amount directed towards EPS(Employment Pension Scheme) by the employer.

Calculation of EPF Balance:

Consider as an example for the fiscal year 2014 - 2015 in which the EPF deposit rate was 8.75% per annum. Assume that the employee started contributions in December.

  1. 1.Calculate the interest rate/ month = 8.75 / 12 = 0.73%

  2. Next, remember that the employee's entire contribution will be directed toward his/her EPF account.

  3. Let's consider he/she contributes at 12% of Rs.15,000 = Rs.1,800 per month; which is credited to EPF account at the end of the month when he/she receives his/her salary.

So in this case, December's contribution will earn interest only by the end of January.

The employer will match this contribution = Rs.1,800. However, remember that only 3.67% of the employer's contribution will be directed towards the employee's EPF account and the balance 8.33% will be directed towards the employee's EPS account. Therefore, the employer's contribution to the employees EPF account = Rs. 3.67% * Rs.15,000 = Rs.550

In this case, monthly contribution to EPF account by the employee and employer = Rs.1,800 + Rs.550 = Rs.2,350.

This is how December 2014 and January 2015 calculations will be :

Dec 2014:

Balance at end of Dec. = Rs.2,350

Interest for Dec. 2014 = Nil

Jan 2015:

Balance carried forward from Dec. = Rs.2,350

Balance at end of Jan = Rs.2,350 + Rs.2,350 = Rs. 4700

Interest for Jan. 2014 = Rs.4,700 * 0.73% = Rs.34.31

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