EPF allows the accumulation of funds along with an accumulation of interest for the funds. The funds that are collected comprise of contributions from both employee and the employer. There are some rules for EPF that should be kept in mind.
Rules pertaining to EPF
Contributions from employees as well as employers add to the EPF However, unlike what is commonly thought to be, the entire portion of contribution from an employer doesn’t go exclusively towards the EPF. The division of funds are mentioned as follows –
- 12% of Salary of Employee goes directly towards EPF
- 12% of Salary of Employer is divided as follows –
- 3.67% of contribution towards EPF
- 1.1% of contribution towards EPF Administration Charges
- 0.5% of contribution towards Employees’ Deposit Linked Insurance (EDLI)
- 0.01% of contribution towards EDLI Administration Charges
- 8.33% of contribution towards Employees’ Pension Scheme
As per the latest changes made to the EPF rules, the following should be borne in mind –
- Revision of minimum salary limits – Earlier, an employee having salary below INR 6500 per month had to mandatory contribute towards EPF. The minimum salary limit has been revised to INR 15000. Thus, employees with monthly salaries less than or equal to INR 15000 now have to contribute mandatory towards EPF
- Changes to pension amount – The minimum monthly pension amount has been now set at INR 1000 for the widow of a member of the Employees’ Provident Fund. For children and orphans, it has been set at INR 250 and INR 750 per month respectively. The pension amount henceforth will be calculated as per the average salary of the last 60 months, instead of 12 months
- Insurance Coverage – The initial coverage amount under EPS had been INR 156,000. As per the recent changes, this amount has now been increased to INR 300,000 per member
- Employer Contribution towards EPS – Due to the change in the minimum salary amounts, employer contribution has increased to INR 1250 per month towards EPS irrespective of if the salary is below or above INR 15000 per month
- Change in threshold limit – Instead of 20 employees per organization as the minimum group size, 10 employees in an organization will be considered eligible for EPF contribution
- Withdrawals – Withdrawals can be made from an EPF account through claim forms for financing an insurance policy, buying or building a house and a few other acceptable situations as per the EPFO
10 things to know about EPF withdrawal
Employee Provident Fund (EPF) should ideally be withdrawn only at the time of retirement of an EPFO subscriber. The Employees’ Provident Fund Organisation encourages the subscribers to transfer their money from their old account to a new EPF account instead of withdrawing it. 'One Member - One EPF Account' facility is one among the many initiatives that the EPFO had taken to encourage subscribers to transfer their money instead of withdrawing it. Subscribers can make partial withdrawals from EPF deposits for the purpose of loan repayment, wedding expense, medical expense, or house construction.
Here are 10 important things one should know about EPF withdrawal:
- As per the latest rules set by the EPFO, a subscriber can apply for EPF withdrawal only if he or she has been unemployed for at least 2 months.
- The amount that an EPFO subscriber receives upon withdrawal is eligible for tax exemption if he or she had contributed to the EPF for more than 5 years.
- If a subscriber transfers the EPF balance from the account maintained with the old employer to the new one, then it will be considered to be a continuous employment.
- When an employee loses the job due to a reason that is out of his or her control, like critical illness or layoffs due to an organisational shutdown, the withdrawal will not be taxed.
- If the EPF is withdrawn before the completion of 5 years, then the withdrawn sum is taxable during the same year.
- In the next assessment year, the EPF amount has to appear in the tax return. The contribution to PF by the employer and the interest earned on that sum is also taxable.
- The interest earned on the employee's contribution and any benefits claimed under Section 80C of the Income Tax Act, 1961 will be taxed as 'income from other sources' and 'salary', respectively.
- According to a recent rule set by the Income Tax Tribunal, the interest earned on EPF will be taxable if an employee quits the job.
- If there is a delay in EPF withdrawal after leaving an organisation, then the interest earned subsequently will be taxed.
- To make partial withdrawals or take advance from the EPF account, the subscriber has to meet certain eligibility criteria. The partial withdrawals/advances can be made online through the EPFO member portal.