Employees Provident Fund: Meaning, Eligibility & Calculation

If you are a salaried person in India, you would – at times – likely have been left frustrated seeing the difference between your earnings and take-home amount on your salary slip. For, the amount shown under the earnings head on the slip is definitely not what you get in your hand, which is much less, thanks to certain deductions. And this can certainly be disappointing.Here, it is important for you to understand that these deductions are not arbitrary. One of the deductions is on account of tax, and we pay it as it is our legal obligation.But what about EPF, or the Employee’s Provident Fund? Surely, that is not a tax?Yes, EPF is not a tax, and you would probably wonder why you should be obliged to have a portion of your salary deducted on its account. This is what we will find out here; read on to find out.

The EPF is a retirement savings scheme launched by the government under the Employees’ Provident Fund Miscellaneous Act, 1952. Its administration lies with the EPF Organisation (EPFO) under the Union Labour Ministry; this government backing is what makes the scheme safe.As for the question as to why you should be obliged to have a portion of your salary deducted on account of EPF, this is why: the government has made it mandatory for salaried employees earning up to Rs 15,000 a month.Under the law, all organisations with at least 20 employees are mandated to be registered with EPFO. The funds that are deducted from the salaries of their employees are credited to their respective EPF accounts.The purpose of EPF or any other Provident Fund Schemes is to encourage savings amongst the salaried and to create a sufficient corpus for them by the time they retire. In other words, the EPF deductions, which are mandated by law, are your ticket to a stable retired life.

Now you know why provident fund is important for the deductions from your salary as EPF, you may wonder over how the amount that goes to your EPF account is arrived at.This is how: As per the EPFO rules, a minimum of 12% of an employee’s basic salary (plus DA) is required to be deducted as EPF, with the employer also matching this contribution. Both amounts are deposited in the employee’s EPF account.However, from the employee’s contribution, only 3.67% goes towards EPF, with as much as 8.33% going towards Employee Pension Scheme (EPS). This contribution is made by both the employee and the employer every month. All the contributions are pooled together and invested in various assets by the trustees.Employees not only earn interest on their own contributions, but they also earn interest on the contributions made by their employers. The rate of interest is announced every year by the EPFO.Employees registered under the EPF scheme receive a Universal Account Number (UAN) when they first open an EPF account. Even if they change jobs, the UAN remains the same, and only their member ID changes which get linked under their UAN. Through UAN, employees can access their EPF account online and can even request withdrawals from the online portal. Also Read: How To Get Your UAN Number and Check PF Balance Easily

Let us take an example of how to calculate EPF and how the interest is calculated on EPF contributions, assuming an employee’s basic salary and dearness allowance taken comes to Rs 20,000.As per the EPFO website, the current interest rate (for the financial year 2023-24) on EPF contributions is 8.15% p.a. Though this interest amount is deposited annually, it is calculated monthly; at 8.15% annually, it works out to 0.6791% monthly.Basic Salary + Dearness Allowance = Rs 20,000Employee’s contribution to EPF = 12% of Rs 20,000 = Rs 2,400Employer’s contribution to EPF = 3.67% of Rs 20,000 = Rs 734Total contribution to EPF every month = Rs 2400 + Rs 734 = Rs 3134Interest on contribution for the month of April 2023 = Rs 3134 x 0.6791% = Rs 21.2830Interest on contribution for the month of May 2023 = Rs 6268 x 0.6791% = Rs 42.5660As you can see, the interest is calculated every month but it is compounded yearly; it is this compounded amount that is deposited at the end of the financial year.

To join an EPF scheme, certain eligibility requirements must be met:1. The Employee Provident Fund is accessible to employees in both the Public and Private Sectors. This means that individuals working in any sector can apply to become a member.2. Organizations with a minimum workforce of 20 employees are obligated to provide the benefits of EPF to their staff.3. Once an individual becomes an active member of the EPF scheme, they become eligible to enjoy various benefits, including insurance benefits and pension benefits.

Follow these steps to login,

1. Go to the EPFO website at https://www.epfindia.gov.in/site_en/index.php.
2. Click on 'Services' and select 'For Employees'.
3. Look for 'Member UAN/Online Service (OCS/OTCP)' under 'Services' and click on it.
4. Enter your UAN, password, and the provided captcha details on the new page.
5. Click on 'Sign In'.
6. You will be directed to your EPFO portal. From there, you can update your KYC details, claim your PF amount, check your PF balance, and transfer your PF amount.

Also Read: How to Generate, Register and Activate UAN Number

Follow these steps to transfer EPF online via the EPFO portal,

1. Log in to your EPF account using your UAN and password.
2. Select the 'One Member – One EPF Account (Transfer Request)' option in the 'Online Services' section.
3. Verify your personal information and current PF account details carefully.
4. Click on 'Get Details' to view the PF account details of your previous employment.
5. Choose either your previous employer or present employer to attest the claim form based on the availability of an authorized signatory with a Digital Signature Certificate (DSC). Provide your Member ID or UAN in the required fields.
6. Click on the 'Get OTP' button to receive a One-Time Password (OTP) on your registered mobile number. Enter the OTP in the provided space and click on 'Submit' to authenticate your identity.
7. An online PF transfer request form will be generated, which needs to be self-attested. Save it in PDF format and submit it to your selected employer. The employer will also receive a notification about the EPF transfer request.
8. The employer digitally approves the PF transfer request. Once approved, the PF amount is transferred to your new account with the current employer. A tracking ID is generated, which can be used to track the application online.

Here’s how to get provident fund. There are certain criteria to withdraw your money from your EPF account. You can either opt for complete withdrawal or opt for partial withdrawal depending on your need and the eligibility criteria.You can withdraw the complete amount from your EPF account if:

• You have retired and are no longer employed.
• If you are unemployed for more than two months. You can even withdraw the full amount if you have joined a new job at least two months after you have left your previous job.

Partial withdrawal of EPF funds is possible if:

• You are unemployed for more than a month.
• It is for paying higher education fees for yourself or for your children.
• It is for medical expenses of yours and your family.
• It is for meeting the marriage expenses of your wedding, or that of your children or your siblings.
• It is for buying or renovating your house.
• It is for repaying your home loan.

Withdrawal of the amount under your EPF can be done offline or online, as explained below.

Offline (Physical) Application

Offline application for EPF withdrawal can be done by downloading the new Composite Claim Form (Aadhaar) / Composite Claim Form (Non-Aadhaar). If you have linked your Aadhaar card and your bank details with your UAN on the UAN portal, and your UAN is active, you need to download and fill the Aadhaar card.If you haven not linked your Aadhaar card and your bank details with your UAN on the UAN portal, you need to download and fill out the Composite Claim Form.Once filled, you can submit these forms to your jurisdictional EPFO office. Non-Aadhaar forms require your employer’s attestation.

Online Application

You can also file a withdrawal application online on the UAN portal. There are, however, certain prerequisites at your end that you need to meet to ensure a smooth withdrawal process.

• Your UAN should be activated, and the cell phone number that was used for activating the UAN should be active.
• The UAN should be KYC verified and linked with your Aadhaar card, PAN card, and your bank account.

If you cannot meet these prerequisites, you will need the attestation of your employer on your withdrawal application.Once you have met the prerequisites, you can follow these steps to submit your online withdrawal application.

1. Visit the UAN portal and sign into your account.
2. From the Online Services tab, select Claim (Form-31, 19, 10C, & 10D).
3. A form will open displaying your KYC details. Once you verify them to be correct, you can fill in your bank account number and click on ‘Verify’.
4. The portal will ask you to agree to the declaration and press yes if you agree. You can press Yes if you have entered the correct bank account details.
5. Click on Proceed for Online Claim.
6. Select the type of claim you want to apply for, Complete Withdrawal or Partial Withdrawal. Do note that the portal will show you available options based on your eligibility criteria.
7. Select PF Advance (Form 31) and provide the purpose for the withdrawal.
8. Fill in the required amount and the employee’s address.
9. E-Sign with Aadhaar OTP
10. Click on submit and provide scanned copies of the required documents.

Also Read: What is EPF 10C Form? Here's Everything You Should Know Your application will take a few days to be processed, following which amount will be credited to your bank account.

The Employee Provident Fund Organization (EPFO) reviews the EPF interest rates on an annual basis, in consultation with the Ministry of Finance. The interest rate for a financial year is determined at the end of that financial year. This means that the new interest rate announced will be effective from April 1st of one year until March 31st of the following year. As of July 2023, the current EPF interest rate is 8.15% per annum.

Amongst the various retirement savings scheme introduced by the government, EPF and PPF are the most popular; the first is a retirement savings scheme mandated for salaried employees, whereas the latter is a retirement savings scheme for all those who earn and want to save, including NRIs.The interest rates on EPF are slightly more than that of PPF and are updated on a regular basis. Moreover, EPF has a lock-in period of five years, after which you are allowed to make partial withdrawals. On the other hand, PPF has a lock-in period of 15 years, after which an investor can withdraw their PPF investment completely. Complete EPF withdrawal is available only once you retire or are unemployed for over two months.There is no difference in tax implications on EPF and PPF as they both belong to the EEE investment category. One can choose to invest in either or in both, depending on the investment goals and saving habits. There is no risk as such in investing in either of them as both are backed by the government and carry a sovereign guarantee.

EPF belongs to one of the few EEE (Exempt-Exempt-Exempt) category investments in India. Investments made in EPF during the year are eligible for tax deduction under Section 80C of the Income Tax Act up to a limit of Rs 1.5 Lakh.When you redeem your EPF after a period of five years, the maturity amount is also tax-free. The interest earned on your contributions as well as the employer’s contributions is also tax-free making EPF an EEE category investment.You should note that in the Budget of 2021, interest on the contribution from employees to their EPF account over and above Rs 2.5 lakh during a financial year was made taxable in the hands of the employee. This tax is not applicable to the employer’s contribution though.

EPF is an ideal investment choice for employees who want to invest a portion of their salary towards their goal of creating a retirement corpus. With an option to increase their contribution via Voluntary Provident Fund (VPF), which is a part of the EPF scheme and offers the same interest rates as EPF, it is even better as those who want to invest more can invest more via the same.Also, as it is a debt instrument with sovereign benefits, it becomes an attractive and ideal investment option for employees who don’t want to take risks and earn stable returns.