The EPF is not a single programme. Actually, it consists of three distinct plans, each with a different goal.Employee pension plan is the second component of EPF (EPS). The goal of EPS is to produce pension for workers after they reach the age of 58. Where your retirement benefits are accrued is in the first section of the EPF. Basically, this is how the programme generates profit.
EPF: The Fundamental Concept
The Employee Deposit Linked Insurance Scheme, also known as EDLI, is a type of life insurance and the third and final component of the EPF. The good news is that you don’t have to register for each of these advantages separately. You immediately sign up for EPS and EDLI when you enrol for EPF.
The Salary and EPF: The Operation
If you work as an employee, you contribute a portion of your salary to the EPF programme. Frequently, your company will match this amount with a contribution of equal value. The Employee Provident Fund Organisation receives the total sum when it has been deposited (EPFO). And on this sum that you have deposited with EPFO, you continue to accrue a specific rate of interest each year.
Let’s say, for illustration purposes, that you contribute ₹ 5,000 per month from your paycheck to the EPF programme. Your company will add an additional ₹ 5,000 each month as a match. Following that, ₹ 10,000 of the total is deposited with EPFO. On this sum placed with EPFO, you will get an annual interest payment of 8.5% (the current rate under the EPF plan). The EPFO makes a decision regarding this interest rate once per fiscal year, therefore it may fluctuate.
The Epf Scheme’s Fundamental Operation Is as Follows
- According to the legislation, the deduction for EPF must now be 12% of your base pay
- However, keep in mind that for the purposes of the EPF, salary solely refers to your basic and Dearness allowance (DA)
- Your HRA, transportation allowance, special allowance, or any other benefit listed on your pay stub is not included in this salary
- Private sector businesses typically do not have a dearness allowance component, hence the base for calculating EPF is merely the ‘Basic Salary.’
The employer matches the employee’s contribution in full. Therefore, that adds another 12%. As a result, the programme receives a total of 24% of your basic wage. The initial portion of the EPF, the wealth building portion where your retirement benefits are accumulated, does not, however, receive the whole 24%.
Epf: Requirements for Entry
Let’s now examine the program’s eligibility requirements
According to current regulations, any company with 20 or more employees is required to register with the EPF and offer benefits to its employees. However, businesses with fewer than 20 employees may voluntarily enrol in the EPF scheme.
The regulations also stipulate that employees must be a part of the EPF programme if their monthly income is up to ₹ 15,000.
However, it is possible to completely opt out of the EPF programme. When you begin your career, that is, when you join your first firm with a base income of more than ₹ 15,000 per month, you have the option to opt out of the EPF system. Since you have never made a contribution to an EPF system, in that case, you can fill out Form 11 when you join the company, and they will classify you as an exempt employee for PF purposes.
You can enlist in the EPF programme at a later time, but once you do, you cannot be exempted from it unless you join a startup or future company that is not registered with the EPF Act.
Rules for EPF Withdrawal
There are three circumstances in which the entire EPF may be withdrawn:
- as soon as you turn 58 years old
- if you have been jobless for more than two months
- Upon the member’s untimely death, the designated nominee receives the full corpus
There are quite a few limitations and conditions that you need to be aware of if you want to withdraw from your EPF account before retirement. The first of these requirements relates to the circumstances in which you are permitted a premature withdrawal. And among them are situations that are highly unique, such as paying off a home loan, buying land, getting married, or going to school.
To Demonstrate the Complexity Required, Let’s Look at a Couple of Instances
You are permitted to withdraw the employee’s accumulated corpus or six times the monthly wage, whichever is less, if you need to withdraw for medical reasons.
A minimum of 7 years of service must have been completed before you can withdraw 50% of the employee’s contribution plus interest for a wedding. Conclusion: Different withdrawal purposes are subject to different restrictions. Therefore, one must keep that in mind.
Calculate how much money will be accumulated in your EPF account when you retire with Vakilsearch’s EPF calculator.
Here Are 10 Instances Where Epfo Will Let You Take a Partial Withdrawal From Your EPF Account:
1) An EPFO member may take up to 50% of the EPF account’s balance for their own marriage, as well as the marriages of their daughter, son, sister, or brother. However, the individual needed to have made EPF contributions for 7years
2) EPFO members may also withdraw funds for their children’s post-secondary education
3) EPFO members may withdraw funds from EPF if a company has been locked up or closed down for more than fifteen days and its employees have been left without pay or if an employee has gone more than two months without receiving earnings. The sum cannot be greater than the member’s own entire contribution, interest included
4) If an employee who has been fired by his employer contests the firing in court, up to 50% of EPF funds may be withdrawn
5) EPFO members may request a withdrawal from their EPF if they become ill with conditions such as tuberculosis, leprosy, paralysis, cancer, mental illness, heart disease, etc., if they must spend a month or more in the hospital, or if they must have major surgery. However, the member must demonstrate that he is ineligible for Employees’ State Insurance Scheme benefits and that a medical professional has advised him to undergo surgery or hospitalisation
6) If a member’s property suffers damage from unforeseeable natural disasters like floods or earthquakes, he may be eligible to claim either 5,000 or 50% of his contribution from the EPF purse, whichever is lower
7) A member who is physically disabled may be given a non-refundable advance from his EPF account to buy equipment necessary to lessen his suffering
8) After becoming 54 years old, or within one year of their actual retirement on superannuation, whichever comes first, an EPFO member may take up to 90% of their EPF balance
9) After turning 55, EPFO members are permitted to withdraw up to 90% of their EPF balance at any time and transfer the funds to Life Insurance Corporation of India for investments in the Varishtha Pension Bima Yojana
10) EPFO members have the option of withdrawing funds for the building of a home or for the purchase of the home’s lot. The member must have held an EPFO membership for the required five years.
Contact our Vakilsearch specialists for additional information about programmes such as PF, withdrawal, and others. We answer all of your questions regarding PF amounts.
- What are the documents required for EPF registration for employer?
- Which employer is eligible for PF?
- What is the procedure of EPF registration?