Employees Provident Fund (EPF) is a savings scheme under the umbrella of Employee Provident Fund Organisation (EPFO).
The governing act for EPF scheme in India is the Employees’ Provident Fund and Miscellaneous Act, 1952. The administration and management of the EPF scheme are taken care of by the Central Board of Trustees. The members of this Board are representatives of the government, the employees, and the government.
The primary aim of the EPF scheme is to promote savings amongst people which can be used by them post their retirement.
Eligibility criteria for EPF
Every organisation employing 20 workers or above is liable for providing EPF benefits to the employee. Every employee registered under this scheme has a PF number and UAN (Universal Account Number). The UAN is permanent while the PF number changes every time the employee changes his organization.
Calculation of EPF balance
The contributions towards EPF are made by both the employer and the employee every month. Every month a deduction of 12% is made from the employee’s salary (salary here would include the basic salary + dearness allowance).
An equal amount of contribution shall be made by the employer towards the employee’s EPF.
The 12% amount contributed by the employee is divided in the following manner:
3.67% of the salary towards EPF
8.33% of the salary towards EPS (Employees’ Pension Scheme)
An additional 0.5% contribution towards the Employee Deposit Linked Insurance Scheme (EDLI) has to be also made by the employer.
The accumulated amount in the EPF account of the employee attracts a certain interest rate. Usually, this interest rate differs for every financial year (financial year begins from 1st April of the current year and ends on 31st March of the next year). For the financial year 2019-20, this interest rate was 8.50%.
The total amount that gets saved in the EPF account is 100% exempted from payment of tax. Therefore, an employee can withdraw the total amount from the EPF account without worrying about any kind of tax deduction.
Some additional points in the context of EPF
In case no EPF contribution is made to the employee’s EPF account for 36 months, the same becomes dormant.
If an account is not operative, and the holder of account has not attained retirement age, interest will be offered on the account. However, this interest is taxable.