You may have heard this term a lot of times, in fact an amount in the name of Provident Fund is already been deducted per month from your salary but you may be still unsure as to what exactly it is! We hope you understand the same till the end of this article. So what exactly is provident fund? In nutshell, it is a kind of an investment fund contributed to by you and your employers per month, out of which a lump sum amount is paid to you in the event of retirement/termination. For a better understanding, a detailed description of the Employee Provident Fund Organization(EPFO) is given-
“Directive Principles of State Policy” under the Constitution of India describes that every state will make effective provision for its residents in respect of the right to work, to education and to public assistance subject to unemployment, old-age, sickness & disablement. At present this act includes the following three schemes-
EPF-Employees’ Provident Fund Scheme, 1952
Employees’ Deposit Linked Insurance Scheme, 1976
Employees’ Pension Scheme, 1995
EPFO- Employees’ Provident Fund Organisation
The Employee provident fund came into force with the propagation of the Employees’ Provident Funds Ordinance on the 15th November 1951. This act was replaced by the Employees’ Provident Funds Act 1952. At present it is known as the Employees’ Provident Funds and Miscellaneous Provisions Act 1952, that is applicable to all over India except the states of Jammu & Kashmir.
EPFO is considered as the world’s largest social security organization in respect of volumes of transactions undertaken and clientele. It works under the administrative control of the Ministry of Labour and Employment which is managed by the government of India. Currently, it is maintaining 17.14 crores accounts of its members. (As per Annual Report 2015-16). All the schemes under this act are administered by the Central Board of Trustees(CBT). In general, CBT administers a contributory provident fund, a pension scheme and an insurance scheme for the workforce engaged in the organized sector in the country.
Applicability of the EPF
Employee’s Provident Fund (EPF) is a benefit scheme that is available to all salaried employees whether government employees or private sector employees. The EPF is maintained by the Employees Provident Fund Organization of India (EPFO). Further, every company with more than 20 employees is required to get registered with the EPFO. Also, all your EPF details are available on the official website of EPFO and you are allotted a Universal Account Number (UAN) to access your account and details.
In short it is applicable to-
Foundations which are factory engaged in any industry specified in schedule 1 and where 20 and more employees are working.
Other Foundations where 20 or more persons are employed as notified by the central government.
Organizations, where less than 20 persons are working, can be voluntarily covered under section 1(4).
Structure of EPFO
EPFO act is administered by the Central Board of Trustees.if we look at the structure, it consists of the Central Board and Executive Committee which consist of the following-
It is administered by the central board of trustees(CBT)under the Central government. Under this board following members are included-
A Vice Chairman
5 Central Government Representatives
15 State Government Representatives,
10 persons- Representing the Employees’
10 persons- Representing the Employers’
It is comprised by Central Government through the notification in the Official Gazette. Members of the executive committee are selected from the members of the Central Board, that includes-
Central PF Commissioner
2 Central Government official Representatives
3 State Government official Representatives
3 Employers’ Representatives
And 3 Employees’ Representatives
Regulative structure of the EPFO is divided into zones, headed by an Additional Central Provident Fund Commissioner. Currently, there are 10 zones in number and further, each state is represented by the regional offices headed by Regional Provident Fund Commissioners (RPFC) (Grade I). Regions are also sub-divided into sub-regions headed by Regional Provident Fund Commissioners (Grade II). Assistant Provident Fund Commissioners are also appointed to assist them and to ensure whether act and schemes are prevailing properly.
In fact, many of the districts in the country have district offices which are headed by an assistant provident fund commissioner to ensure the applicability of the act.
Functions Of EPFO
EPFO is performing the dual functions, one as the regulator of the act to see the implementation and another one as the service provider. Its main function includes providing retirement benefits to private as well as government employees. Overall it performs the function of settling claims, maintaining individual accounts, and regulation of payments under pension scheme and others. In addition to this EPFO performs the below-mentioned functions-
Functions of the Regional Committee Formed under EPFO
To issue the annual accounts slips to members of the fund
Performs the function of the fast settlement of claims
Sanction the advances fastly
Look after the progress of recovery of Provident Fund contributions
Functions of the Executive Committee Formed under EPFO
Opening Sub-Regional offices
Creating new regions and updating the old one
Define work norms for all the staffs and officers of the organization
Identifying the proposals for obtaining land and buildings etc.
How does the Scheme work – Contribution and Interest?
The contribution towards Provident Fund is made @12% of your basic salary plus dearness allowance(DA). You and your employer both contribute 12% each out of which 12% contributed by you goes directly to the EPF account and the other 12% contributed by the employer goes to the EPF account as well as is diverted towards Employee’s Pension Scheme. Generally, 3.67% goes to the EPF A/c and 8.33% towards pension scheme.
All these contributions are then invested by a trust which generates an interest income at the rate which is decided by the Government. Currently (FY 2018-19), the rate is 8.55% which decreased from an 8.65% FY 2017-18. Further, though you make contributions monthly, the interest is calculated yearly on the amount standing to your credit as on the 1st April of that year. For the next year, the interest would be calculated on the accumulated balance in the EPF account i.e. last balance + total contributions + last interest.
Let’s understand interest calculation from given below example :
Basic Salary + DA = Rs. 30,000/-
Rate of interest for FY 2018-19 = 8.65% per annum i.e. 8.65/12 = 0.7208% per month
In this case,
Employee’s Contribution towards EPF (30,000*12%)
Employer’s contribution towards EPS (30,000*8.33%)
Employer’s contribution towards EPF (30,000*3.67%)
Total contribution towards EPF (3600+1100)
Assuming there is no balance in EPF account, contribution starts from this year :
Opening Balance of EPF A/c
Total contribution for this year (Employee+Employer)
This interest will be calculated every month in above manner and deposited only at the end of financial year
Services Offered by EPFO
Under the EPFO a number of services have been provided to different persons including Employers, Employees, International workers, Pensioners. A detailed description of all the services have been described here-
UAN is the 12 digit Universal Account Number allotted to a person(employee) who is contributing towards the EPF. It is issued by the Ministry of Employment and Labour that works under the Government of India. UAN was launched by the current Prime Minister Mr. Narendra Modi in 2014 with an objective to link all the PF accounts and member IDs under the same umbrella. Your Provident Fund account is managed by the number provided as UAN and it will remain the same irrespective of your job change.
UAN offers services i.e linking of previous member’s id with the present ID, updated UAN card,updation of PF passbook, SMS regarding the contribution in PF etc.
2. Registration of Establishments Online
Employers can easily get registered under EPFO portal by providing the basic details as asked by the Ministry of Labor and Employment. It can be done by sitting at home online and you are not required to make any extra effort to visit the EPFO office.
3. PF Withdrawal
Withdrawal from PF account can be done in case a person is unemployed for more than two months or didn’t get any job within a time period of 60 days from leaving the previous job. So in such case, a person can online withdraw from PF Account.
4.UAN Member E-Sewa for Employees
A person having active UAN number can take advantages of e-sewa portal. Under this portal members can see the details such as- KYC, Profile, Service History, UAN card, and EPF passbook, EPF tracking status, etc.
5. Online Payment of PF
From September 2015, it is mandatory for all the organizations to pay PF online. The employer can make the payment of PF by two types-
Through EPFO Website
Or by visiting the employer’s bank website
Currently, only a few banks are providing this service and it includes banks i.e.-
SBI, Allahabad Bank, Union Bank of India, PNB, HDFC Bank, Bank of Baroda, Kotak Mahindra and Axis Bank.
It is the one-stop solution for any problem related to EPFO. Under the grievance system of EPFO you can make a complaint regarding any issue i.e PF Transfer, Withdrawal of PF, etc. Introduction of grievance services online has reduced the issues of the people to a large extent.
7. SMS and Missed Call Services
To avail these services UAN must be activated. Once it is activated, then members of the EPFO can get required details by sending an SMS to the given number-7738299899. The format of SMS is- EPFOHO UAN, Followed by the first three characters of the message in the language preferred. Members can also get the details by giving a missed call on 011-22901406.
8. Helpdesk- Inoperative Accounts
Inoperative PF Accounts are those accounts in which no contribution has been made since the last 3 years. So these accounts convert in the inoperative mode bu from February 25, 2015, inoperative accounts helpdesk has been set up online. And by using this helpdesk members can settle down their PF account.
9. Coverage certificate for International Workers
Members who are working out of India but do have a Social Security Agreement in India can get a Certificate of Coverage(COC). It is initiated by the Government of India for the benefit of Employer and Employee both.
10.Passbook and Claim status
On the EPFO portal, members can claim the status and check you passbook, etc by providing the UAN credentials.
Is it mandatory to contribute to PF? What happens in case of a job change?
Well, it’s mandatory for the employees with a basic salary plus dearness allowance up to Rs. 15,000 (earlier it was Rs. 6,500). And those who are earning above Rs. 15,000 may contribute voluntarily.
Further, in case of a job change, your EPF account remains the same, you just have to inform your previous and new employer about the job change and details of the EPF account. Everything else remains the same except that now your new employer is contributing a sum to your EPF account.
When can you withdraw money from your PF Account?
You can withdraw money from EPF account if you are not employed at that time and a waiting period of 2 months has passed except the following 2 cases where you don’t have to wait for 2 months:
In case, you are employed in a foreign territory, or
you are a female who is leaving service to get married.
Generally, withdrawals are not allowed from your EPF Account, but you can withdraw some amount from your EPF account in the following cases:
Your own expense in relation to marriage, education, emergency medical expenses;
Marriage, education and medical treatment for siblings and children;
Medical Treatment for dependent parents, spouse or children;
Purchase of house/flat/construction of house including acquisition.
Alteration expenses of your house only if you have completed 5 years of service;
Repair expenses of your house or Repayment of house loans only if you have completed 10 years of service;
Repayment of existing home loan subject to 10 years of service.
What are the tax benefits of EPFO?
Statutory Provident Fund
Recognized Provident Fund
Unrecognized Provident Fund
Exempt up to 12% of Salary.
Deduction u/s 80C subject to Rs. 1,50,000 limit.
Deduction u/s 80C subject to Rs. 1,50,000 limit.
Deduction u/s 80C is not available.
Interest credited to such fund upto 9.5% p.a. is exempt.
Lump sum Amount received at the time oftermination
Exempt subject to certain conditions.
Employee’s contribution is exempt & interest on employee contribution is taxed under the head “Income from other sources”.Employer’s contribution and interest thereon are taxed as salary income; however, an employee can claim relief u/s 89 in such case.
For a better understanding of the concept, let’s say, Ms. Somani earns a salary of Rs. 20,000 per month and contributes 12% of her salary i.e. Rs. 2,400 per month to the Statutory PF. Her employer also contributes the same (Rs. 2,400 per month). Then, in that case, the employer’s monthly contribution of Rs. 2,400 will be exempt in her hands. The interest @8% p.a. on the balance standing on 1st April (say Rs. 60,000) shall also be exempt in her hands i.e. Rs. 4,800 (60,000 x 8%).
Further, 12% contributed by Ms. Somani can be claimed by her as a deduction u/s 80C while filing her return. And, for the next year, she will be entitled to an exempt interest amount of Rs. 9,792 (being calculated @8% on last balance Rs. 60,000 + total contributions of the present year Rs. 57,600 + last interest Rs. 4800).
Even at the time of retirement say after 25 years, the accumulated amount in her PF account shall also be exempt.
Is PF different from PPF?
Conceptually, there is not much of a difference, but still, the following differences prevail:
While PF is for only salaried employees, PPF is for all individuals who can make a consistent contribution to the fund.
In PF, the employer and employee both contribute, while in PPF only the individual contributes.
In case of PPF, the full amount invested cannot be withdrawn before completion of 15 years however you can make partial withdrawals from 7th year, i.e. after completion of 6 years. While in PF you can do so subject to some conditions.
Frequently Asked Questions
Q- How to Check PF Balance online/with UAN Number?
You can check the PF balance online by login the EPFO portal. Here select the tab Our Services and under that select the for employees. Now click on the Member Passbook tab under the tab Services.
Further, a screen will appear asking the details of UAN number and password. For the complete understanding of the process read the full article.
Q- How can I link my PF account to existing UAN?
To link your PF account to existing UAN visit the EPFO portal. Click on One employee – One EPF account tab under the services. A form will be opened here, enter all the details asked. Enter the details of UAN and current member ID. As soon as you will submit the form, you’ll get a OTP on your registered mobile number. Enter the OTP. Further a page will be shown where you will have to mention old PF account details and accept the declaration. After completion of the process, your request for merging PF account is sent to EPFO.
Q- Is PF exempted from income tax or not?
Yes, the contribution made towards EPF is exempt u/s 80C of the Income tax act, up to certain limit and the contribution made by employer or employee both are exempt. Withdrawal of EPF is also exempt from income tax if withdrawal after 5 years.
Q- Can I take a loan on PF?
Employees’ Provident Fund Organization allows employees to partially withdraw the money from the fund and use it as the personal loan in some specified conditions. Although in order to give approval for the asked amount, EPFO verifies and examines it thoroughly.
Q- How to know UAN Number?
You can get your UAN number from your employer. As all the employers possessess the details related tpo the UAN number of their employees.
Q- What are the details of UAN Helpdesk contact?
If you have any query or complaint in respect of UAN Member Portal then you can ask for it by calling on the given number 1800 118 00 or by sending an e-mail on uane[email protected]
Q- My EPFO claim shows that it is under process, what does it mean?
Ans: Whenever an EPFO claim status shows payment under process it means your claim was in process, once EPFO sends money to your bank account then you will receive a message that claims settled, money sent to your bank account by NEFT.
Q- Can we withdraw PF from any EPFO office?
Ans: Yes An individual can withdraw PF balance by filing a request directly with EPFO if he has universal Account Number with him.
Q- How do I read an EPFO passbook? What is the meaning of various columns in there? How do I calculate the exact amount I have?
Ans: An EPFO Passbook is just like a bank passbook. Calculation of balance is also same.
Q- How many hours will it take to get an EPFO passbook after activating UAN?
Ans: For the 1st time it takes almost 6 hours.
Q- I can't update my KYC in the Unified Portal of EPFO. It shows error each time. How do I update my KYC?
Ans: Data uniformity in all the documents is the solution to all of this. In case of Aadhar not linking , Kindly cross check your name or DOB on aadhar with EPF profile. If you have two Mr or wrong EPFO name , Then Go to MANAGE —->> MODIFY BASIC DETAILS. There you can request to change your EPFO name with respect to aadhar.
Q- How long does it take to correct PF account details after submitting to EPFO through your previous employer?
Ans: After being approved by your employer this request will go to the EPFO office where your account is created by your employer. Now, this request may take 1 to 10 working days time to be approved and updated
We hope next time the amount of PF deducted from your salary doesn’t pinch you because now you know how beneficial it is for your retirement! And the best part, it is tax-free from start to the end! In any case, you still have doubt(s), drop a comment below or just contact us at [email protected] or call +91-9660996655!
Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.