Having secured a job, an individual aspires for a better life, a comfortable home, health care, and a pension to take them easily through retirement blues. Key to lead the life out of retirement blues is pension planning for which the savings through Employees’ Provident Funds are important.
Deep insights about Employees' Provident Funds are presented in this article including schemes, eligibility criterion, calculation and withdrawal.
The Employee Provident Fund is a welfare scheme brought into action for securing the future of employees. It is a statutory benefit given to the employees at the time of retirement or while discontinuing the work either permanently or temporarily due to any disability. This fund is created using the contributions made by employees and employers every month encouraging them to save a portion of their salary as a form of tax-free investment. Under Section 80C, the contributions made by the employees are eligible for tax deductions.
These contributions are stored every month in the EPF account which is further linked to the ESIC (Employees’ State Insurance Scheme). It is a multidimensional social security scheme that provides cash benefits on certain contingencies to workers, maternity benefits to female workers, and medical care to self as well as family.
The Central Board of Trustees including the representatives of the employees, employers, and Government help in performing the management and administration of EPF. This welfare scheme is administered by a statutory body developed by the government of India under the Ministry of Labor and Employment, namely, EPFO (Employee Provident Fund Organization). An organization must register with the EPFO having 20 or more permanent employees working across different branches and departments.
UAN is a unique 12-digit number that is generated by the EPFO and assigned to a particular employee contributing to the EPF. This number remains the same throughout the service period of an employee allowing them to withdraw and transfer funds without any involvement of the employer. Universal Account Number is essential for an employee enrolled under EPF which can be obtained after logging in to the EPFO website. This will then provide different information including EPF balance on the registered mobile number via SMS.
Under the EPF Act of 1952, the following three schemes are in operation:
They are calculated based on one’s basic salary, Dearness Allowance (DA), and Retaining Allowance (RA). DA includes the cost of living adjustment paid by the government to the public sector employees and pensioners. RA is paid by the employer to the employee to retain resources.
EPS is designed as a “Benefit Defined Social Insurance Scheme” that came into effect on November 16, 1995. This scheme was framed under EPF Act, 1952, to provide retiring pension, superannuation pension, permanent total disablement pension, orphan pension, children pension, and widow or widower’s pension to whom this Act applies.
Employees’ Deposit Linked Insurance Scheme is an insurance cover that is provided for private sector salaried employees by the EPFO. It was framed to provide certain insurance benefits to the beneficiaries of the deceased employee which helps in maintaining the economic wealth of the family.
The eligibility criterion to be followed for becoming a member of EPF include:
The contribution is divided differently for both the employee and the employer as mentioned below:
An employee contributes 12% of their salary to EPF.
An employer contributes 3.67%, 8.33%, and 0.5% to EPF, EPS, and EDLI respectively. Also, 0.85% and 0.01% are also contributed for EPF and EDLI Administrative charges respectively.
Through this, it can be analyzed that there is no contribution of an employee to the insurance premium charges or administrative charges for both EPF and EDLI and solely contributes toward EPF.
If the basic salary of an employee is Rs. 13,000 per month, the employee contribution shall be 12% of 13,000, which is equal to Rs. 1,560.
Out of 12%, the employer is required to contribute 8.33% to the Employee Pension Scheme while the remaining 3.67% must be contributed to the EPF so the 3.67% of Rs. 13,000 is Rs. 477.
Funds from the EPF account can be withdrawn under certain circumstances which are discussed in brief as follows:
Technically, the withdrawal of full EPF amount while an employee is still working is illegal but it can be done under certain circumstances (followed by specific rules) which are listed as follows:
Employees’ Provident Fund helps employees working in either public or private sector to secure their future by contributing a small portion of their salary to the EPF account. This account is also linked to the ESIC, a social security scheme that delivers cash benefits to workers and their families. EPF is managed and administered by a statutory body, Employee Provident Fund Organization. There is an eligibility criterion to be followed for becoming a member of EPF whereas the main point is that it is only applicable pan-India. Moreover, the full withdrawal of funds can be performed only when an employee is retired. In the case of a deceased employee, spouse or legal heirs have the authority to withdraw the funds. To sum up, it can be stated that for a better life and to eliminate retirement blues EPF plays a significant role.