Employees' provident fund (EPF) – Eligibility

Introduction-

EPF is a saving scheme run by the Employee’s Provident Fund Organization (EPFO), as per the provision of The Employees Provident Fund and Miscellaneous Provision Act, 1952. EPFO is administrated and managed by the Central Board of Trustees (CBT) and is governed by the Ministry of Labour and Employment. In this blog, we will discuss about Employees’ Provident Fund – Meaning – Eligibility – Benefits

Topics Covered –

Briefly explain the concept of EPF?

EPF is a saving scheme that is introduced by the EPFO under the direction of the Government of India. This scheme is regulated towards the salaried class to encourage the practice of saving money to build a substantial retirement benefits.

This scheme is a compulsory contributory fund aimed at providing social security and retirement benefits to the employees’ after his/her retirement or his/her dependents in case of employees’ early death. Under this scheme, an employee has to contribute 12% (10% in certain cases) of his salary towards the scheme and an equal contribution is made by the employer. In the case of female employee contribution rate from both employees and the employer is 8%. On retirement, the employee gets a lump sum amount including self and employers’ contribution with accrued interest on both. More than 5 crore employees’ are covered under this scheme.

This scheme is regulated by the following three Acts.

Employees’ Provident Fund Scheme, 1952
Employees’ Pension Scheme, 1995
Employees’ Deposit Linked Insurance Scheme, 1976

Who is eligible for Registering into EPF Scheme?

Section 2 and 4 of Employees’ Provident Fund and Miscellaneous Provision Act, 1952 prescribes the eligibility for registering into EPF Scheme-

Every factory engaged in any industry specified in Schedule 1 in which 20 or more persons are employed.
Another organization employing 20 or more persons or class of such organization which the Central Government may notify.
Any other organization notified by the Central Government even if employing less than 20 persons.
Salary of the employee must be less than Rs 15000.

What are the benefits of EPF Scheme?

Benefits of EPF Scheme-

Tax Savings- Actual deposited amount as well as interest amount both are exempted from tax. Also the withdrawal of the accumulated amount after the retirement is exempted from tax.
Long term benefits- As the deposited amount cannot be withdrawn easily. Therefore funds that are deposited in EPF scheme helps to ensure savings.
Benefits at the time of unemployment- In certain cases employees’ may lose jobs because of any reasons. The funds can be used in such situations to meet personal expenses.
Death- Total amount including interest is given to the nominee of the employee after the death. Such EPF benefits will help the family to get through the difficult times.
Disability- If the employee is not in the working state or cannot work further, then such funds can help employee to get through their tough times.
High interest- EPF gives higher interest as compared to other schemes. It gives 8% to 9% interest p.a. currently; it is 5% for the financial year 2019-2020.
No LOCK-IN Period- The total amount can be withdrawn early in case of an emergency like job loss, wedding, loan repayment, etc.

What is the interest rate of EPF scheme?

Rate of interest offered by EPF Scheme for the F/Y 2019-20 is 8.5%. The interest accrued in EPF account is tax free.

How interest on EPF is calculated?

The interest on EPF is calculated each month by dividing the rate per annum i.e. 8.5% by 12. This method helps to calculate the specific amount of interest offered to employees’ for a given month.

When EPF can be withdrawn?

Employees’ may opt either partial or complete withdrawal of EPF amount. But such withdrawal can only be made under certain circumstances-

Complete withdrawal-

At the time of retirement.
If the employee is unemployed for more than 2 months.
Switching from one job to another job and the unemployed period is more than 2 months.

Partial withdrawal-

For wedding
For higher education
Purchase of land or Construction of house
Repayment of home loan
Renovation of residential house

Important note-

On 12/11/2020, Union Finance Minister Nirmala Sitharaman announces new stimulus package worth Rs 2.65 lakh Crore (around 15% of national GDP). A new Scheme “Atmanirbhar Bharat Rozgar Yojana” is being launched to incentivize creation of new employment opportunities during the COVID recovery phase. For further reference read our blog on “Aatma Nirbhar Bharat 3.0”.

In case of any query related to the EPF then seek assistance from the Team of Manthan Experts for immediate assistance.