Employee Provident Fund as the name suggests is an account under which a saving contribution is made for a salaried employee on a monthly basis. The said saving amount is deducted from the salary of the employee and is either a fixed amount of Rs. 1800% or 12% of the basic salary.
Employee Provident Fund registration is mandatory for all companies having a total strength of 20 employees or above. Any Company having more than 20 employees in India must register for the Employee Provident Fund. Upon recruitment of any employee, the company needs to either open an EPF account of the employee or take credentials of the existing account of the employee. The company or government sector undertaking thus needs to deduct a certain amount from the salary of the employee and deposit in the EPF account. An equal contribution is also made by the Company or Employer.
It is compulsory to open EPF account for an employee having a salary of less than Rs. 15000/- per month. However, it is not compulsory to open the Employee Provident Fund account for an employee having a salary above Rs. 15,000 per month, but it is at the discretion of the employer to do so. Most companies give this facility to all their employees irrespective of their salary bracket.
If EPF registration is done by a company and in the future, the number of employees decreases to less than 20, it is mandatory for the Employer or Company to continue the contribution to the EPF account.
Key Features Of EPF
- A contribution is made both by Employer and Employee in EPF.
- It’s universal access and a universal account number no is granted.
- Only one EPF account per individual can be operated at any given point in time.
- EPF account can be transferred when the employee changes the job.
- Interest rates change quarterly and can be searched online.
- EPF account is non – transferable.
Calculation of EMPLOYEE PROVIDENT FUND Contribution
- EMPLOYEE PROVIDENT FUND amount is calculated on basic salary + DA.
- An equal contribution is made both by employer and employee. The employee makes a contribution of 12% of basic salary + Da or Rs. 1800/-. The amount is deducted from gross salary and deposited directly by the employer to the EMPLOYEE PROVIDENT FUND account. An equal amount is deposited by the employer.
- The Employer deposits 3.67% of salary in Employee Provident Fund and 8.33% is deposited in the Employee pension scheme. The employer further pays 0.5% of salary to Employee Deposit Linked Insurance and further 0.5% is paid by the employer towards EMPLOYEE PROVIDENT FUND administration charges.
- Those companies having an employee strength of fewer than 20 people deduct only 10% of the salary (basic + DA) and an equal amount is deposited by Employer. The employer deposits 8.33% of salary in Employee pension scheme, 1.67% is deposited in EMPLOYEE PROVIDENT FUND.
- For certain industries, the EMPLOYEE PROVIDENT FUND amount to be deducted is 10% only irrespective of the size and number of employees working for the Company.
- The amount deducted for Employee Provident Fund depends upon various factors:
- If the salary is above 15000/- per month, the employer can either deduct minimum EMPLOYEE PROVIDENT FUND of Rs. 1800/- or 12% of the Basic + DA.
- If the salary of the employee is above 15000/- equal contribution can be made by the employer. 8.33% of the salary is deposited by an employer in the Employee pension scheme and the balance amount is deposited in the EMPLOYEE PROVIDENT FUND account.
- However, the Company may also deduct 12% of the salary of the employee having a salary above 15,000/- and deposit a minimum amount of Rupees 1800/- per month plus 1%.
There are following benefits of EMPLOYEE PROVIDENT FUND scheme
- It is a low-risk investment and a long term saving plan for the employee.
- The employee enjoys the benefit of the contribution made by the employer.
- The interest rate is about 8 to 9% and is tax-free.
- It comes under the EEE category which means exempt, exempt, exempt, which means no tax is charged on investment, no tax is charged on interest during the investment and no tax is charged on withdrawal amount upon retirement.
- investment benefit under section 80C, tax benefit up to the limit of 1,50,000 on EMPLOYEE PROVIDENT FUND deposit.
- Insurance as a family gets relief on the death of the account holder.
Withdrawal and closure of EMPLOYEE PROVIDENT FUND account
- 100% amount with interest can be withdrawn upon retirement. The retirement age is 58 years.
- At the age of 57 years, the account holder can withdraw 90% of the amount (amount + interest) from the EMPLOYEE PROVIDENT FUND account.
- Partial withdrawal is allowed due to medical emergency, purchase of land or house or construction of a house, housing loan repayment, education of children or siblings or self.
- Partial withdrawal allowed after 5 years, 7 years or 10 years depending upon the circumstances only.
- Upon resignation and unemployment for a further 2 months, the EMPLOYEE PROVIDENT FUND account holder can withdraw a 100% amount.
- However, If the EMPLOYEE PROVIDENT FUND account is less than 5 years and the amount is withdrawn before completion of 5 years, no tax benefit is given. Tax liability if the EPF account is not maintained for 5 years.