Provident Fund

 Provident Fund

Simply put, PF is Provident Fund is a part of your salary, which is deducted every month and deposited on your behalf. If you work in a private firm then the company pays the same amount as it is deducted from your account and when you leave the firm you can apply and withdraw the amount saved. This amount will come handy when you are out of job or retire. This deposit is maintained under a member_id containing string of Office code,establishment code,pf-no.((for ex MHBAN00222220000000104) where MHBAN is Office code, 22222 is the estcode and 104 is the pf no.) by the PF Office in this case Bandra PF Office.

Futher 12% of your salary(basic+da) is deducted and your company (establishment) contributes 8.33% towards your pension and another 3.67% towards your pf. This accumulation ie 12% +3.67% fetches an interest rate of 8.55% p.a. This amount will grow to a big amount at the time of leaving the job. If you contribute continuously for 5,7,10 years you will be eligible for a advance for various reasons like marriage,house,medical etc. also if Pension fund contribution is more than 10 years you will be eligible for a pension also.

What is Provident Fund (PF)?

As compulsory, government - managed retirement savings scheme, Provident Fund enables employees to contribute a part of their savings each month towards their pension fund. Over time, this amount gets accrued and can be accessed as a lump sum amount, at the end of their employment or at retirement. The Provident Fund money is a huge amount that helps you grow your retirement corpus.

There are mainly three different types of PFs, which include the following:

• The General Provident Funds is a type of PF which is maintained by governmental bodies, including local authorities, the Railways and other such bodies. Thus, these types of PF’s are mainly defined by the government bodies.
• The Recognised Provident Fund is the one which applies to all privately-owned organisations that contain more than 20 employees. Moreover, holding a rightful claim to the PF associated with your organisation, you will be given a UAN or Universal Account Number. This enables you to transfer your PF funds from one employer to another whenever you move from one occupation to another.
• The Public Provident Fund is defined by the voluntary nature of investment on the part of the employee. The PPF is also associated with a minimum deposit of INR 50 and a maximum amount of Rs. 1.5 lakhs. This PF also comes with a pre-determined maturity period of 15 years, only after which any form of withdrawal can be done from the account.

While Provident Funds are low - risk investment avenues that can help you grow your money easily, it is important to invest the PF funds in smarter investment avenues that enable you to grow your funds furthermore.

Short Description of EPF:

The Employees’ Provident Fund (EPF) is a savings scheme introduced under the Employees’ Provident Fund and Miscellaneous Act, 1952.

The EPF scheme basically aims at promoting savings to be used post-retirement by various employees all over the country. Employees’ Provident Fund or EPF is a collection of funds contributed by the employer and his employee regularly on a monthly basis. The employer and employee contribute 12% each of the employee’s salary (basic + dearness allowance) to the EPF. These contributions earn a fixed level of interest set by the EPFO. The amount of interest to be received on the deposit along with the total accumulated amount is totally tax-free, i.e. the employee may withdraw the entire fund without worrying about paying any kind of tax on it.

The accrued amount may also be withdrawn by the nominee or the legal heir of the employee post his death or can be withdrawn by the employee himself post-resignation.

Latest Rules pertaining to Employees Provident Fund

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 Employees’ Provident Fund. The division of funds as of November 2015 is mentioned as follows –

1. 12% of Salary of Employee goes directly towards Employees’ Provident Fund
2. 12% of Salary of Employer is divided as follows –

• 3.67% of contribution towards Employees’ Provident Fund
• 1.1% of contribution towards EPF Administration Charges
• 0.5% of contribution towards Employees’ Deposit Linked Insurance
• 0.01% of contribution towards EDLI Administration Charges
• 8.33% of contribution towards Employee’s 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 Employee Provident Fund 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:

1. 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.
2. 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.
3. 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 continuous employment.
4. 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 organizational shutdown, the withdrawal will not be taxed.
5. If the EPF is withdrawn before the completion of 5 years, then the withdrawn sum is taxable during the same year.
6. 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.
7. 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.
8. 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.
9. If there is a delay in EPF withdrawal after leaving an organization, then the interest earned subsequently will be taxed.
10. 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.

EPF Withdrawal Rules for withdrawal based on purposes

For Medical Purposes:

• An employee is allowed to withdraw employee’s share with interest or six times the monthly salary (whichever is lower) from the provident fund for the medical treatment purpose.
• It is applicable for medical treatments of self, spouse, children, and parents.
• There is no lock-in period or minimum service period for this type of withdrawal.

For Repaying Home Loan:

• For the purpose of repaying the home loan outstanding, the member is allowed to withdraw up to 90% of the corpus if the house is registered in his or her name or held jointly.
• However, to withdraw the amount, at least 3 years of service completion is required

For Wedding:

At least 7 years of service is required to be completed to be eligible for withdrawal

50% of the employee’s contribution with interest can be withdrawn.

An employee can withdraw funds for his own, siblings or child’s marriage

For Renovating and Reconstructing a House :

• The employee can withdraw funds from his EPF account for the purpose of renovation and reconstruction.
• The house should be held in his/her name or held jointly with the spouse
• The employee must complete at least 5 years of total service
• The member can withdraw 12 times his monthly salary from his Provident fund account

For Purchasing or constructing a House:

• The member can withdraw from his employee provident fund for the purpose of purchasing a plot and constructing it.
• The property should be registered in his or her name or held jointly with a spouse.
• An employee should complete a minimum of 5 years of total service.
• 24 times of the monthly salary for purchasing a plot/36 times of the monthly salary for purchasing or constructing a house or the cost of the property or the total of employee’s and his employer’s share along with the interest amount (whichever is less) can be withdrawn.
• Withdrawal is allowed only after completing 5 years of service
• Withdrawal for the purpose of purchasing a plot and constructing it can be done only once in the entire service tenure.

Retirement :

• A person can withdraw his or her entire provident fund corpus after completing 58 years of age.
• The employee is allowed to withdraw up to 90% of the provident fund balance.

Unemployment:

A person can withdraw 75% of his or her provident fund if he/she is unemployed for more than a month.

For unemployment of more than 2 months, the remaining 25% of the corpus can be withdrawn.

EPF Withdrawal Rules before 5 years of Service

EPF withdrawal before 5 years of continuous service attracts TDS on the withdrawal amount. However, if the withdrawal amount is less than ₹ 50,000, no TDS is deducted. In case you want to withdraw your funds before 5 years of service, you should keep the following EPF withdrawal rules in mind:

• As per the latest modification in ITR Forms 2 and 3, the assessee has to provide a detailed breakup of the entire amount deposited in the PF account every year.
• This will help the Income Tax Department to assess whether the withdrawal made by you is taxable or not.
• The department will also check whether additional tax has to be paid by you after revaluation.
• EPF contribution is done in four parts – Employee’s contribution, employer’s contribution and interest on each deposit.
• If the employee has claimed an exemption on EPF contribution for previous years as per Section 80-C, all four parts will be taxable.
• If the employee has not claimed an exemption in the previous year on EPF, the employee’s contribution part will be exempted from tax at the time of withdrawal.
• The tax will depend on the income slab in which the employee fell for that year.
• The tax will be applicable in the year of withdrawal but the consideration will be done for each year.

EPF Withdrawal Rules after Retirement

• As per the EPF Act, when a member retires at the age of 58 years, he has to claim for the final settlement.
• The total PF balance consists of both employees as well as the employer’s contribution.
• The member also becomes eligible for the EPS amount if he has served for a period of more than 10 years in continuation.
• In case the member has not completed 10 years of service at the time of retirement, he can withdraw the complete EPS amount along with his EPF.
• If he completes 10 years of service, the employee gets pension benefits after retirement.
• The withdrawal of the corpus accumulated in the EPF account after retirement is completely tax-free.
• The interest earned on the EPF corpus after retirement is taxable.
• An employee who has registered at the EPF member portal can fill the form and claim his funds online.
• If the member does not withdraw funds for three years after retirement, he will have to pay tax on the interest

“Provident fund is a fund which is composed of contributions made by the employee during the time he/she worked along with an equal contribution by his employer”

RATE : Provident fund is calculated as 12% of his/her basic salary & the same amount is contributed by the employer.however employee have a option to contribution more than 12%

DEPOSIT OF CONTRIBUTIONS:

Employers contribution of 12% of basic salary is totally deposited in provident fund account whereas out of employees contribution of 12% , 3.67% is contributed to provident fund & 8.33% is deposited in Pension scheme.

IS IT COMPULSORY FOR ALL EMPLOYEES TO CONTRIBUTE TO THE PROVIDENT FUND?

employees drawing basic salary upto Rs. 1,5000/- have to compulsory contribute to the provident fund . however , employees drawing above Rs. 15,000/- say Rs. 15,001 have an option to become member of the provident fund.

ADVANTAGES:

1. Tax benefit u/s 80C
2. retirement benefit
3. withdrawal benefit

NOTES:
1.However if a person withdraw the amount of provident fund before the end of 5 years all the benefits he got u/s 80C against Provident fund will get reversed & added with the income in which withdrawal has been made & fully taxable . So be careful about the timing of withdrawal.
2.Benefits under the pension fund is available only after the continuous service of 9.6 years & after completing the age of 58 years . continuous service of ten year does not means to work with the same company but every time when a person change job ,the PF account must be transferred & continuous for ten years.

FORMS REQUIRED:

1.Form NO. 2 is required to be filled to become the member of the provident crowdfunding,fundit,fund it Resources and Information. is called a Nomination Form .
2.Form no. 13 is required for transfer of Provident fund.
3.Form no. 19 is required for withdrawal of provident fund
4. Form no. 10C is required for withdrawal of pension fund.

All the forms are available with the HR department of the company .

provident fund plays a very important role because at the time of retirement a person get a healthy sum & pension amount subject to the conditions fulfilled as per provident fund Act.

In your retirement planning, Employee Provident fund plays an important role as it gives the security to you and your family once you reached the retirement stage. In India, EPF is the most beneficial investment process for salaried individuals who are working in the private sector.

However, below here I am going to highlight some benefits of EPF (Employee Provident Fund) which every salaried person should know.

Give Insurance Benefit:- According to Employee Deposit Linked Insurance (EDLI) all the organizations where group insurance scheme is unavailable, the employer must contribute to .5% of monthly basic pay as premium towards life insurance. Though this amount does not seem much, still people who work in small Enterprise this amount is good enough for them to help their family.

Tax-Free:- The interest you earn through EPF is tax-free. Also, at the time of withdrawing your fund, there is no need to pay tax.

It's Easy to Access:- If you want to change your job then the transferring your EPF account is done aromatically by the help of the Submission Form 13. Just you have to link your Aadhaar to UAN.

Extra Benefits:- Not only financial security and tax saving benefits, but also you can use this fund for different purpose such as- Educational need for you or your child or any sibling, in Medical emergency, Marriage, housing and so on. Always remember that you have contributed to your EPF account for three years and after that, you can withdraw the funds.

If you want to use your EPF for renovation, construction or for housing loan then you have to contribute to your account at least 5 years. Then only it helps you to get your dream house.

Employee’s Provident Fund (EPF) is a retirement benefit scheme that’s available to all salaried employees. This fund is maintained and overseen by the Employees Provident Fund Organisation of India (EPFO) and any company with over 20 employees is required by law to register with the EPFO.

It’s a savings platform that helps employees save a fraction of their salary every month that can be used in the event that you are rendered unable to work, or upon retirement.

The compound interest that’s decided upon by the government and central board of trustees is paid on the amount standing to the credit of the employee as on the 1st of April every year.

While your contributions are made monthly, the interest is calculated yearly. At the start of every year, you have an opening balance (which is the amount accumulated till that point). Your opening balance for the next year would be: opening balance + total monthly contributions + interest on the (old opening balance + contribution) .

Biggest advantage of an EPF is the Employer’s contribution - which makes your fund size swell compulsorily at a decent rate. I really feel that such forced saving is must for every employee / salaried persons