Employee Provident Fund (EPF) or Tax Saving PF

What is EPF or PF? Are these two the same?

EPF is the acronym for "Employee Provident Fund." It is popularly known as Provident Fund (PF) or Tax saving PF among people. It is a long-term investment instrument. It ensures a financially secure retirement for the beneficial person. Here, both the employee and employer make a periodic contribution to the PF account. This total contribution will turn out to be a lump sum of PF money in the individual's PF account. He can use it at the age of 58 after his retirement.

What is EPFO?

The EPFO stands for "Employees Provident Fund Organisation." This organization is managed by the government of India. It is one of the world's largest organizations that sustain around 24.77 crore user accounts. It wholesomely takes care of the retirement savings plan- EPF or Tax Saving PF. It is mandatory for companies having 20 or more employees' to enroll at the EPFO portal. It means that every company must register at Employees Provident Fund Organisation (EPFO) portal if it has a 20 or more employees. This rule helps employees to avail benefits related to EPF. Even companies with less than 20 employees can opt for EPF registrations on voluntary basis.

What do you mean by EPF? And how to use it?

The government of India introduces Financial Acts to reform the direct tax system. So many provisions in those acts remove difficulties faced by Indian Taxpayers. Three different Financial Acts direct the Tax Saving PF scheme:

1. Employees' Provident Fund Scheme Act, 1952,
2. Employees' Pension Scheme Act, 1995 &
3. Employees' Deposit Linked Insurance Scheme Act, 1976.

The above Financial Acts provide a strong structure for this retirement scheme.
According to it, the total contribution to the Tax Saving PF account is made equally by both employer and employee. Understand the employee's contribution is entirely 12% of his salary. But the employer's contribution will be divided into EPF and EPS. So it will be lesser than 12%. When you open a Tax Saving PF account, you automatically register to EPF, EPS, and EDLI schemes. So there is absolutely no need to register the EPF, EPS, and EDLI financial instruments separately.
The only thing to remember is that you should learn how to calculate PF savings in these three primary tires. According to that, you should make your PF contribution. Consult our Chartered Accountant to know tax benefits related to PF account.

How to calculate the PF contribution?

What after you once get registered to the Tax Saving PF scheme? Now, both the employee and employer shall make a 12%-12% contribution. So on the surface, it looks like an equal contribution of 12% from both sides. But there is a catch. From the employee's side, there is a 12% contribution. But from the employer's side, the 12% contribution will only partially go to the EPF part.
The EPS part is calculated on basic salary + some dearness allowance, which is Rs. 15,000.
For example, suppose an employee's monthly salary is Rs. 60,000. Then from the employee's side, the total contribution will be 12% of Rs.60,000, i.e., Rs.7,200.
But from the employer's side, it will be partially Rs.7,200 that will go to the PF account. It will be split into three parts and then calculated,

Hence, the total EPF contribution from the employer side = Rs. 2,202.00 + Rs. 3,748.50 = Rs. 5,950.50
Overall, EPF contribution from both sides = Rs. 7,200.00 + Rs. 5950.50 = Rs. 13,150.50

Why is the EPF account known as Tax Saving PF?

The Employee Provident Fund is commonly known as the Tax Saving PF. Because it offers so many tax benefits. Some of them are listed below:

1. It is an easy retirement investment instrument.
2. It helps people to avail of up to 1.5 lakh tax deductions under Section 80C.
3. If the annual contribution does not exceed Rs.2.5 lakh, then PF interest is tax-free. You only need to pay income tax on PF interest when your annual PF contribution exceeds Rs. 2.5 lakh.
4. Earlier, there was a possibility of misuse of the employee's PF money. It may happen that the employers didn't deposit the PF contribution at EPFO on time. It leads to a loss of interest earned on PF money for the employee. To overcome this problem, the Budget 2021 came with an amendment. There is no expense deduction for employers who don't submit it on time.

What are the benefits of Tax Saving PF?

Many investment instruments, such as PPF, FD, NPS, Mutual Funds, etc., are available in the marketplace. Yet it is being noticed that salaried persons found the Tax Saving PF alluring. They consider the EPF scheme as one of the safest instruments. People can efficiently operate it once it gets registered at the EPFO portal.
Put a glimpse at its other benefits:

• It offers an excellent interest rate.
• It is a low-risk investment instrument.
• It provides tax exemptions under the beneficial Exempt Exempt Exempt scheme.
• It is an ideal scheme for retirement pension once you touch the age bar of 58 years.

Use Tax2win’s Income Tax Calculator - FY 2022-23 for filing an ITR.

What are the EPF eligibility criteria?

Opening a Tax Saving PF account for employees earning Rs. 15,000 or fewer per month is mandatory. So anyone getting a salary of Rs.15,000; is eligible to deposit his PF contribution to his Tax Saving PF account. So his employer should open an EPF account for employees such as him. It is compulsory. Even so, employees earning more than Rs. 15,000 can also voluntarily stay in this savings plan.
However, one can opt-out of this scheme at the start of his career. He should fill out a form- FORM 11 during his joining so that he will be excluded from the list of other PF employees of the companies.

How to open an EPF account?

If someone wants to open his Tax Saving PF account, then these are the steps:

Step 1. Get registered on the EPFO portal.
Open the official website of EPFO, India. Click the "Online Registration of Establishment" under services for employers. It will open a new page.

Step 2. Download the user manual.
The new page will open in a new tab that will redirect to the sign-up page of Shramsuvidha, i.e., https://registration.shramsuvidha.gov.in/user/login. Here, there is a tab called "Download Manual." Before proceeding with the registration, download the user manual and read it thoroughly.

Step 3. Sign-up at Shram Suvidha portal.
Once you thoroughly read the user manual, you may step ahead. Create an account at Shram Suvidha portal. Complete the sign-up by entering the individual name, mobile number, and e-mail id carefully.

Step 4. Complete filling out the form.
When you input all requisite information and sign up at Shram Suvidha, you can only fill out the Registration Form for a new EPF-ESI application. Therefore, it is advisable to fill in all the details carefully, then click on the "Submit" button.

Step 5. Attach Digital Signature Certificate.
Lastly, you need to upload the Digital Signature Certificate of the employer. You need it to receive a confirmation mail for any successful EPFO registration.

How to withdraw from an EPF account?

There are some scenarios under which an individual can withdraw his PF amount. Check the withdrawal rules of the Tax Saving PF or EPF account below:

1. At the age of 58
2. Unemployed for more than two months
3. The premature death of the account holder

What is the EPF interest rate for the year 2023?

The declared EPF interest rate for the applicable fiscal year 2022-23 is 8.10%.