Employee Provident Fund

Employee Provident Fund or EPF is a scheme that is available to all salary employees. It is basically a retirement benefit scheme which is overseen and maintained by the Employee Provident Fund Organization of India or EPFO. 

Eligibility

• Since the day of joining a company or a work establishment, an employee is eligible for membership. 
• It includes eligibility for insurance, pension and provident funds.
• Any establishment with 20 or more employees is required by the law to register under EPFO.
• The state of Jammu and Kashmir does not come under the Act.

How it Works

• Both the employee and employer contribute in EPF.
• As an employee, one contributes 12% of his or her basic salary towards the PF, every month.
• The contribution is typically deducted from the employee’s salary even before it gets credited to his or her bank account.
• The employer’s contribution isn’t entirely towards the PF account. It goes towards pension, insurance and administration costs. 
• The employer contributes 8.33% towards Employee Pension Scheme or EPS, and 3.67% to EPF.
• Additionally, the employer also pays 0.5% to Employee Deposit Linked Insurance Scheme or EDLIS, 1.1% and 0.01% as EPF administration and EDLI administration charges respectively.
• The interest rate is fixed and pre-determined.
• The contribution is set to 10% for:
• work places which have less than 20 employees
• sick industries
• guar gum, jute, beedi, brick, coir establishments
• the establishments whose year-end losses exceed their net worth by a huge margin
• workplaces which are subjected to a set wage limit.
• The interest rate for EPF deposits is 8.65% for the year 2016-2017.
• The interest is calculated every month.

Maturity and Withdrawal

• One can withdraw their PF fully after then attain 55 years of age.
• PF is available for withdrawal if a person is unemployed for over six months. In such cases, the PF becomes taxable if the person has had the PF account for less than 5 years.
• Premature withdrawal or borrowing against EPF deposits are allowed under the following circumstances:
• After completion of 5 years of service, for buying a plot of land or buying or building a house is permissible once.
• After completion of 10 years of service, for repaying a home loan.
• For medical treatment of self, spouse, children or dependent parents.
• For funding marriage of self, siblings, or children.
• To finance self or children’s education, after completion of 7 years of service.

Advantages

• The interest one earns from EPF is tax-free.
• It is a long term saving option.
• With the introduction of Universal Account Number (UAN), one can transfer their accounts despite changing their employer.

Limitations

• Withdrawal before completion of 5 years leads to the amount becoming taxable.
• A chunk of money gets deducted from one’s salary every month which could have been used for some other purpose.

EPF is a benefit that all salaried employees can avail. It is a saving scheme where one saves a fraction of their salary every month so that they can be used upon retirement. A long term saving like this will surely benefit one after their retirement or for some emergency purpose to a huge extent.