Introduction
All the establishments in India that have employed 20 and more than 20 employees can apply for EPF Registration in India. In some instances subject to the conditions and the exemption establishments employing less than 20 are still eligible for EPF Registration in India. The employee gets an amount that includes the employer and the employee’s contribution with interest on resignation or retirement from the Employees Provident Fund.
Key Features of the Employees’ Provident Fund
- Applicability:
- EPF applies to establishments or industries with 20 or more employees.
- It covers employees drawing a salary (basic + dearness allowance) of up to ₹15,000 per month. Employees earning above this threshold can opt in with the consent of the employer and EPFO.
- Contributions:
- Both the employer and the employee contribute 12% to the EPF.
- The general contribution rate is 12% of the employee’s basic salary plus dearness allowance.
3.67% goes to EPF.
8.33% goes to The Employees Pension Scheme (EPS).
0.5% to The Employees Deposit Linked Insurance Scheme (EDLI).
0.85% to the administrative charges.
- Interest Rate:
E.P.F. contributions interest rate is determined annually by the Employees Provident Fund Board (EPF) and is then credited to the employees’ EPF account at the end of the financial year.
- Withdrawals:
Employees are allowed to take money out of their E.P.F account by specific reasons including retirement, unemployment buying/constructing of a house, marriage and education and emergencies of medical nature.It is also possible to make partial withdrawal for specified reasons if they meets the requirements for doing so.
- Universal Account Number (UAN):
This assists in the administration of EPF accounts for the employees with different employers
How to work EPF
- Contribution:
Each month, a certain percentage of employee’s salary is contributed towards EPF and then employer also contributes a similar amount.
- Interest Accrual:
The contributions are stored in the employee’s EPF account and attract interests, which is compounded on an annual basis.
- Account Management
- Claims and Withdrawals:
This can be done sitting at home online through the EPFO portal using Universal Account Number (UAN).
Steps to Register for EPF
For Employers:
1. Registration:
Formally integrate the establishment into the EPFO via the online EPFO website.
Obtain an establishment code.
2. Employee Enrollment:
Now register employees through the UAN generated by EPFO and mapping UAN with EPF account numbers.
3. Monthly Contributions:
Remember to make the EPF contributions on or before the due date for the month by logging on to the EPFO portal.
For Employees:
1. UAN Activation:
- Activate the UAN on the EPFO portal to access and manage the EPF account.
2. Linking Aadhaar:
- Link the UAN with Aadhaar, PAN, and bank details for seamless operations and KYC compliance.
Benefits of EPF
- Retirement savings: Accumulates a significant amount over the employee’s working life, ensuring financial security post-retirement.
- Employer Contribution: The employer’s contribution adds to the employee’s retirement savings.
- Tax Advantages: Contributions, interest, and the final corpus (under certain conditions) are tax-exempt, enhancing the net returns.
- Social Security: Provides financial assistance during emergencies through partial withdrawals.
- Regularly monitor the EPF account balance and statements online.
Comparison between Empyee Provident Fund ( EPF), the Public Provident Fund (PPF), the National Pension System (NPS), and the Voluntary Provident Fund (VPF).
| Employees’ Provident Fund (EPF) | Public Provident Fund (PPF) | National Pension System (NPS) | Voluntary Provident Fund (VPF) | |
| Applicability | Mandatory for employees in establishments with 20 or more employees. | Open to all Indian residents. | Available to all Indian citizens, including salaried and self-employed individuals.Particularly beneficial for those not covered by other pension schemes. | Optional scheme for employees who are already contributing to EPF.No separate account; VPF contributions are made through the EPF account. |
| Contribution | Employee and employer both contribute 12% of the basic salary + dearness allowance. | Minimum contribution of ₹500 per year, maximum of ₹1.5 lakh per year. | Minimum contribution of ₹1,000 per year.No upper limit on contributions.Contributions can be made monthly, quarterly, or annually. | Employees can voluntarily contribute more than the mandatory 12% of their basic salary and Dearness Allowance.There is no upper limit on VPF contributions, but the total contribution (EPF + VPF) should not exceed the employee’s basic salary. |
| Interest rate | typically around 8-9%p.a | 7-8% p.a. | 8-10% p.a. | 5-7% p.a. |
| Withdrawal Rules | 1.Partial withdrawals allowed under specific conditions.2.Full withdrawal on retirement, early retirement, or unemployment for more than two months. | 1.Lock-in period of 15 years.2.Partial withdrawals allowed from the 7th year onwards.3.Loans can be taken against the balance from the 3rd to the 6th year.4.The account can be extended in blocks of 5 years after maturity. | 1.Withdrawals restricted before the age of 60.2.Partial withdrawals (up to 25% of contributions) allowed after 3 years for specific purposes.3.At retirement, 60% of the corpus can be withdrawn tax-free, 40% must be used to purchase an annuity. | 1.Similar to EPF, withdrawals are restricted before retirement (58 years).2.Partial withdrawals allowed for specific purposes.3.Complete withdrawal allowed on retirement or after 2 months of unemployment.Interest earned is tax-free if certain conditions are met (5 years of continuous service). |
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Disadvantages of EPF
Limited Liquidity:
Restricted Withdrawals: Consequently, EPF is not for short-term saving and the administrator only allows limited early access; usually only after retirement.
Tax Implications on Early Withdrawal
This involves in such way of the employer’s contribution and the accrued interest for the amount which compromises the net receipt greatly.
Fixed Interest Rate:
Comparatively Lower Returns: Although EPF offers a steady return, these returns are often lower than the other long-term saving instrument such as equity mutual fund or stocks which have higher returns in the longer run.
Employer Dependency:
Mandatory Contributions: Employer and the employee have the responsibility of making contributions to the EPF. An employer who is reluctant in depositing the contributions on time or has not complied with the EPF regulations might cause a problem to accrue interest to the employee’s account or alter his/her benefits.
Conclusion
Diversifying one’s investment portfolio to include other investment vehicles, alongside EPF, can help mitigate these disadvantages and provide a more balanced financial strategy for long-term growth and security.
