Employee Provident Fund is proving to be a boon for salaried employees in this falling interest scenario. Be it small saving schemes like- PPF, Sukanya Samriddhi, SCSS, RBI saving bonds, and even bank deposits, all have faced interest rate cuts, only EPF is giving an 8%+ rate of interest, that too tax-free.
(Read a detailed post on the New RBI floating rate bonds.)
So, in a way we may say that the Employee Provident Fund (EPF) is the highest fixed return generating safe investment option, supplementing the retirement corpus of salaried individuals.
(Read more on Safe Investment options in this article.)
The EPF Scheme is managed by the Employee Provident Fund Organization (EPFO).
However, some companies like- HUL, TCS, Reliance, BHEL have formed their own exempted PF trusts to manage the Provident Fund of their employees, rather than transferring it to EPFO.
The working rules of these trusts are the same. It’s just that these trusts have to file monthly returns to EPFO.
(Also Read: Importance of filing Income Tax Returns before due date)
In this post, let us look at some of the important provident fund rules to make the understanding better about this compulsory saving option.
Employee Provident Fund Rules #1– Contribution made by Employer and Employee:
Every employee under the Employee Provident Fund scheme has to mandatorily contribute 12% of their Basic Pay plus DA and Retaining Allowance (if any). Employer would also contribute a similar amount.
However, out of the employers’ contribution 8.33% goes to EPS (subject to a maximum salary limit of Rs.15,000) and 3.67% adds into your Employee Provident Fund a/c.
It means that if the salary of the employee is less than Rs.15,000 then 8.33% of his total salary would go into EPS. And if the salary is more than Rs. 15,000 then a maximum of 8.33% of Rs.15,000 i.e. Rs.1,250 would be diverted into EPS, the rest would get deposited into the Employee Provident Fund account itself.
The EPS portion would be used to offer pension to the member employee in the event of attaining superannuation/retirement, permanent/partial disablement, pension to the nominee in the event of death etc.
In addition, the employer also contributes 0.5% of the salary (maximum up to Rs. 15,000) to the Employee Deposit Life Insurance Scheme (EDLIS), which provides the employee life cover maximum up to Rs. 7 lakhs (increased from 6 lakhs).
(Also Read: How to select a suitable online term cover?)
However, if the employer has its own group life insurance scheme for the employees, then it may choose to opt-out of EDLIS.
Also, Employees may choose to voluntarily contribute beyond the statutory requirement of 12% of salary, then this is called Voluntary Provident Fund (VPF). Rest all features remain the same as EPF. Although, the employer has no compulsion to match this increased contribution.
In Budget 2021, it was proposed that interest on Employee Contribution to EPF/VPF beyond Rs. 2.50 lakhs per annum would be added to the total income of the individual and taxed as per Income-tax slab rates applicable, from FY 2021-22.
Also, if the employer delays to deposit of the employee contribution to the EPFO, which results in a permanent loss of interest to the employees, the delayed deposit would never be allowed as a deduction for the employer.
Also Check- How to Download and Read EPF e-passbook
Employee Provident Fund Rules #2– Universal Account Number (UAN):
Every employee has allotted a unique 12 digit number by the Employee Provident Fund Organization. It is a permanent number that does not change with employment and acts as an umbrella for all member IDs provided to him by different organizations he has worked for. All these IDs are now linked to the UAN.
For new employees, the employer generates their UAN through the EPFO website, which needs to be activated by the employees by providing necessary KYC documents.
Those employees who already have UAN and have changed their job then they have to provide the UAN to their employer so that the new member Id can be linked to the UAN and the existing balance can be transferred. Employees have to fill Form-11 for this. (Read: Online and Offline process to transfer EPF account from old to the new company)
UAN has made the operation and management of the EPF account much easier. Now with mandatory linking of Aadhar with UAN and updating other KYC details have brought in greater transparency.
Member Employees can check their EPF balance online or through SMS by providing their UAN and KYC details. Even transfers and withdrawals can be done online through UAN and take much lesser time than before.
Also Check- All you wanted to know about Employee Provident Fund
Employee Provident Fund Rules #3– Withdrawal on Retirement/Resignation:
Every employee is allowed a tax-free withdrawal of his entire Employee Provident Fund corpus which includes- Employer contribution, Employee contribution, and the interest accrued, on attaining 58 years of age.
He is also eligible for a pension under EPS if he has completed 10 years of service. Form 19 can be used for this purpose, along with UAN and KYC documents to claim the withdrawal online, and Form 10D can be submitted for obtaining the pension certificate.
In case of non-availability of UAN, the PF money can also be withdrawn by submitting the physical application to the regional PF office. If the Aadhar number is registered with the PF, the Aadhar based composite claim form can be used. You may download it here.
If not, then the non-Aadhar based composite claim form is required to claim the withdrawal. Click here to download. But, before submitting it to the Regional PF office, you need to get it attested either by any bank manager, a Gazetted Officer, or a Magistrate.
However, as per the latest Provident fund rules, it is also possible to withdraw the Employee Provident Fund before retirement, if the employee has remained unemployed for 2 months.
As per Provident Fund Rules, He may withdraw 75% of the accumulated corpus after 1 month and the balance 25% after 2 months of unemployment. If he/she gets back to Job after 1 month then the remaining 25% may be transferred to the new epfo account with the new employer.
But it is illegal to withdraw the EPF corpus during job switches and not even advisable from the financial planning perspective.
(Also Read: Why Retirement Planning Should be considered the most important financial goal?)
If after leaving the job, someone chooses to do self-employment, or not getting into formal employment and thus has stopped contributing to Employee Provident Fund, provident fund rules state that the balance would continue to earn interest till 58 years of age but it would not be tax-free. It would be added to the income of the individual and taxed as per the slab rates applicable.
(Also Read: Old or New Income Tax Slabs: What to choose?)
The application for withdrawal should be made within 3 years (36 months) after retirement. Post that the account becomes inoperative and would not earn any interest according to the provident fund rules.
Employee Provident Fund Rules #4– Withdrawal during job tenure:
Premature EPF withdrawal during job tenure is called ‘advances’. Employee Provident Fund rules say that such advances can be availed by the employees in special circumstances like- buying, construction or renovation of house, education or marriage of self/children, medical treatment of self/family members, repayment of home loan, etc.
In addition, there is also a special advance mentioned for housing. EPFO has also allowed withdrawal of 90% of the Employee Provident Fund balance for the down payment for buying a new house. The EPF account can be used for paying EMIs as well.
(Also Read: How prepared are you of buying a new house?)
However, there are caveats attached to it. As per provident fund rules, the member employee availing this scheme has to be a member of a registered housing society having at least 10 members and have completed 3 years in service.
Employees can apply for withdrawals online through Form-31. It is not a big task if Aadhar, Bank Account and PAN is linked to the UAN.
Employee Provident Fund Rules #5- Nomination:
Nomination is an important aspect not only in Employee Provident Fund but in every investment. Nominee is the person entitled to the corpus in the event of the death of the account holder.
As per provident fund rules, Employees can nominate one or more family members- dependent parents/spouse/children in the EPF account, using Form 2. An online nomination facility is also available.
(Also Read: How to make the best use of Nominations in Wealth Distribution)
Member employees who do not have any defined family at the time of giving nomination may nominate any other person. However, this nomination would be considered invalid if they had acquired a family.
(Also Read: Nomination or Joint Account Holding- What is better?)
Nomination done prior to marriage also stands cancelled and the employee has to file a fresh nomination post marriage.
If no nomination exists, the corpus is payable to the family members in equal proportion except for major sons and married daughters.
Also Check- Top 8 EPF How-to Questions Answered
Employee Provident Fund rules- Conclusion:
Employee Provident fund or EPF is generally the first Investment that someone does after entering in the working life. It’s a mandatory savings generating safe and fixed rate of return. This is one of the best tools to accumulate towards old age.
The EEE (Exempt- Exempt-Exempt) feature, where the contribution, interest, and withdrawals all are exempt from income taxes makes it more attractive and thus many investors prefer to do VPF for their other debt savings. Knowing the product well and provident fund rules helps in good decision making around it.
As explained in the article above UAN, KYC and technology have made the operation of Employee Provident Fund Account hassle-free, and the withdrawal and advance rules give the necessary flexibility in the otherwise locked in the product, so you may use this to the full advantage.
Employee Provident Fund Rules-Top 25 FAQs:
Employee Provident Fund scheme, which can be used for supplementing the retirement corpus of salaried individuals. Under this scheme, employee has to mandatorily contribute 12% of their Basic Pay plus DA and Retaining Allowance (if any). Employer would also contribute a similar amount. Employee is allowed a tax-free withdrawal of his entire Employee Provident Fund corpus which includes- Employer contribution, Employee contribution, and the interest accrued, on attaining 58 years of age.
Employees may choose to voluntarily contribute beyond the statutory requirement of 12% of salary, then this is called Voluntary Provident Fund (VPF). Rest all features remain the same as EPF. Although, employer has no compulsion to match this increased contribution.
Every employee has allotted a unique 12 digit number by the Employee Provident Fund Organization. It is a permanent number that does not change with employment and acts as an umbrella for all member IDs provided to him by different organizations he has worked for. All these IDs are now linked to the UAN.
For new employees, the employer generates their UAN through the EPFO website, which needs to be activated by the employees by providing necessary KYC documents.
Member Employees can check their EPF balance online or through SMS by providing their UAN and KYC details. Even transfers and withdrawals can be done online through UAN and take much lesser time than before.
If the salary of an Employee is more than 15,000 then he may choose not to deduct PF from his salary.
Every employee is allowed a tax-free withdrawal of his entire Employee Provident Fund corpus which includes- Employer contribution, Employee contribution, and the interest accrued, on attaining 58 years of age.
However, as per the latest Provident fund rules, it is also possible to withdraw the Employee Provident Fund before retirement, if the employee has remained unemployed for 2 months.
He may withdraw 75% of the accumulated corpus after 1 month and the balance 25% after 2 months of unemployment. If he/she gets back to Job after 1 month then the remaining 25% may be transferred to the new epfo account with the new employer.
But it is illegal to withdraw the EPF corpus during job switches and not even advisable from the financial planning perspective.
Every establishment employing more than 20 employees are covered under the Employee Provident Fund Act and notified by the Central Government. These organizations have to deduct 12% of the employees’ salary (Basic Salary+DA) towards the EPF scheme. Employees should also match the contribution.
However, some organizations not having 20 employees, fulfilling some conditions laid down by the EPFO are also covered under the Act. However, the contribution is reduced to 10% of salary.
Any employee having a salary of more than 15,000 at the time of joining an organization are considered as ‘non-eligible’ employees. However, they may also become a member of EPF scheme, with the permission of the assistant PF commissioner if his employer agrees.
PF transfer is required to link the new member ID of the employee to the UAN in the event of job change so that the existing balance of the EPF with the previous employer get transferred to the new employer.
It can be done through the EPFO website online if you have an activated UAN. You may use form 11 for this.
Yes. It is possible to withdraw PF without resignation/ retirement. Such premature Employee Provident Fund withdrawal during job tenure are called ‘advances’. Such advances can be availed by the employees in special circumstances like- buying, construction or renovation of house, education or marriage of self/children, medical treatment of self/family members, repayment of home loan etc. 90% of the PF balance can also be withdrawn one year prior to retirement.
No, you have to wait for 2 months of remaining unemployed. You may withdraw 75% of the accumulated corpus after 1 month and the balance 25% after 2 months of unemployment. If you are employed back to Job after 1 month then the remaining 25% may be transferred to the new epfo account with the new employer.
You may use form-19 to claim your withdrawal after you had quit your job. You may apply for an online withdrawal through the EPFO website if you have activated UAN and updated KYC and bank details
You should withdraw your PF within 3 years of your Retirement. After that the account becomes inoperative and does not earn any interest.
The PF account remains active upto 3 years (36 months) without contribution. Post that it becomes inoperative.
Yes, if you have resigned rom your job and stopped contributing to EPF then the interest earned on the same would be taxable as per the slab rates applicable.
To claim a tax-free withdrawal you must complete 5 years of service. But if 5 years has not completed than the full withdrawal amount be taxable and all the tax benefits earned in the last years of contribution will be reversed.
If you do not withdraw your PF within 3 years of retirement, the account becomes inoperative and rules say that, if the accounts has remain inoperative for 7 years, the unclaimed amount has to be transferred to Senior Citizens’ Welfare Fund
PAN is required at the time of PF withdrawal. In the absence of PAN, TDS would be applicable on this withdrawal at the maximum marginal rate i.e. 30% plus applicable cess. If the PAN is registered than TDS rate would be 10% plus cess.
If the PAN is registered than TDS rate on PF withdrawal would be 10% plus cess. In the absence of PAN, TDS would be applicable on this withdrawal at the maximum marginal rate i.e. 30% plus applicable cess. But in case the withdrawal amount is less than 50,000 then no TDS will be deducted. Also, you can submit 15g form at the time of withdrawal if his income does not exceed the basic exemption limit after adding the epf withdrawal amount, to claim a refund of the TDS deducted.
Form-31 can be used to claim EPF withdrawal online during employment tenure for some special circumstances. For this, Aadhar, Bank Account and PAN has to be linked to the UAN.
No. Every employee is entitled one UAN only, throughout the course of his employment.
No. You may either merge the multiple PF accounts or may transfer the amount all the old PF accounts to the current one. UAN would be required for the same.
It is not advisable to withdraw your EPF while switching jobs. Tax-free interest, compulsory savings, equal employer contribution, and annual compounding make this product very attractive from a long term savings point of view. So, it is always better to transfer the PF balance to the new employer.
Will EPF also apply for charitable trusts?
Yes, any charitable institution Employing 20 or more persons would be covered under the EPF Act. Read this Business Standard article:
https://www.business-standard.com/article/economy-policy/employees-of-temples-mosques-come-under-pf-ambit-115090900008_1.html
I have to withdraw my PF money but I dont have UAN number as well as I resign my company 2013 before e filing system of PF. Now any possibility to withdraw my money
Hi Vinith,
If you do not have the UAN, you have to submit the physical application to withdraw your PF money to the regional PF office. If you have the Aadhar number registered, you may download the aadhar based composite claim form from the link below:
https://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/Form_CCF_aadhar.pdf
If not, then download the non-aadhar based composite claim form from the link below:
https://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/Form_CCF_nonaadhar.pdf
In this case, you have to also get the form attested with the employer before submission to the regional PF office.
Sir, Thank you for the insightful article on EPF. Please answer this one long pending query in my mind.
I am aged 46 years worked in a private company for about 20 years. I have lost the job due to Covid impact. I do not plan to join another company now but relocate to hometown to do farming. Can I leave my PF account untouched now and withdraw when I attain retirement age of 58 years ?
Yes, Mr. Nandeesh, you may do it. The deposit would continue to earn interest. But it may not be tax-free. It would be added to the income and taxed as per the slab rates applicable.
Hello. Thank you for the comprehensive information on EPF. Could you also explain how the interest is calculated on PF contributions, specifically why an additional division by 1200 is made on the interest amount calculated for the accumulated balance for a year?
Hi.
Would it be possible for an employee to continue with profident fund contribution after being transfered to a company that doeas not have EPF but only PF.
What does teh LRAC say regarding options to withdraw 100% of your EPF to meet the needs of the other employer you are being transferred to?
Hi,
If a person resigned from his job and withdraw all pf fund after 2 months and he joined another company after 3 months and his basic pay is more than 15000, would it be compulsory for the new company to deduct pf? as ones a member is always a member rule is there but he has withdraw all his pf amount and basic pay is also above 15000?