The Employee Provident Fund | The Ultimate Guide for 2024

Posted by  Fintra , updated 2023-12-06

The Employee Provident Fund | The Ultimate Guide for 2024

The Employee Provident Fund (EPF) is an investment scheme introduced by the Employees Provident Fund Organization (EPFO) of India, which is an organ of the Labour and Employment Ministry of the Indian Government. It states that an organization that has 20 or more permanent employees must register with the EPFO.

Employee Provident is a retirement benefits scheme, and any salaried employee can join an EPF. The scheme creates a common provident fund where the employer and the employee each will have to contribute 12% of the basic salary.

The deposits are made every month. In this way, employees are stashing away a part of their salary each month, ensuring that they have enough savings after retirement. EPF is eligible for tax benefits under Section 80C. Both the interest gained and the returns are made tax free.

In this blog, we have provided every detail related to EPF for enhancing your knowledge about it. Fintra suggests before jumping to conclusions, you should do a bit of research, consider other options, weigh in all the factors, and then carefully make a decision.

The topics that will be highlighted are:

  1. What is EPF’s Eligibility Criteria?
  2. How do I open an EPF Account?
  3. How to register for EPF?
  4. What are the advantages of EPF?
  5. What are the disadvantages of EPF?
  6. Does EPF allow premature closure/withdrawal?
  7. EPF current rate of interest
  8. Interest cost on EPF for FY 2020-2021

                           Employee Provident Fund

What is EPF’s Eligibility Criteria?

Employees need to turn into a functioning individual from the plan to profit benefits under this plan.

Employees of an association are straightforwardly qualified for profiting Provident Fund, and protection benefits such as annuity benefits are given from the day, they join the association.

Any association utilizing at least 20 laborers is at risk to give EPF advantages to the laborers. To learn more about the EPFs eligibility criteria, click here.

How do I open an EPF Account?

By the rules and regulations of the Government of India, only the employer, individual or organization can open an EPF account, on behalf of its employees. Almost every legitimate organization has an EPF account for its employees.

The employer asks the employee to sign a form stating personal details and the name of the account nominee. Once it is duly filled up, the form is sent to the EPFO. After processing and verification, the EPFO activates the EPF account, and an account number is generated for the employer and the employee.

The EPFO also provides the employee with the Universal Account Number (UAN), with which the employee can access his or her EPF account online and enjoy other benefits as well.

How to register for EPF?

Visit the administration site Employee Provident Fund Organization (EPFO)

Go to the segment of 'Foundation Registration' that opens up another page with 'Guidance Manual'. It will clarify the cycle of Employer Registration, trailed by the enlistment of DSC [Digital Signature Certificate] of the Employer which is essential for new application accommodation

Acknowledge 'I have perused the guidance manual' tick box to continue and fill in the subtleties to enlist

An email e-connect will be sent to you, which is to be enacted, and a portable PIN is likewise sent. You have to transfer certain archives to enroll

The individuals who are as of now enlisted can sign in utilizing their Universal Account Number (UAN)

What are the advantages of EPF?

By investing in an Employee Provident Fund, you get to enjoy various benefits, a few of which are already stated above. The advantages that an EPF account offers are listed as follows-

  1. Your EPF account helps build up your pension fund so that you are financially secure even after your retirement. The pension that you will receive from EPF is directly dependent on your duration of employment and the average salary the year before retirement.
  2. On the account of the death of the account holder, the pension amount will be transferred to the immediate family. However, they are only qualified for the pension if they fulfil the specified terms and conditions.
  3. Since EPF is a government scheme, it is a completely safe and stable investment option. Your returns will be fixed and secure.
  4. EPF is eligible for tax deductions under Section 80C of the Income Tax Act of 1961. Tax benefits apply to both the interest gained on the amount and the returns. EPF comes under the EEE category of Section 80C.

                Advantages of EPF 

What are the disadvantages of EPF?

Despite its many benefits, EPF has its drawbacks as well. The disadvantages of an EPF account are listed as follows-

  1. EPF account requires you to deposit a regular amount of money throughout your professional life. It is only after your retirement that you get the returns. If you are in dire need of money during your working life, you cannot get the cash.
  2. During their working life, employees cannot withdraw money from the fund. Premature withdrawal is only allowed under certain specified circumstances, and only after producing various documents and completing a complicated and hassling list of paperwork.
  3. The account cannot be closed earlier than retirement, except only on the death of the subscriber.
  4. The factor of inflation is a significant one when it comes to EPF. When you retire, the cost of living would be even more expensive than it is now, due to the ever-growing inflation. In that costly market, your savings would seem meagre and will be stripped off of any real value.
  5. EPF scheme is a list of compulsions that are strictly enforced upon the subscriber. You are forced to put down a part of your salary as savings every month. This reduces your financial capability and dictates you to give up a chunk of your money that could have been used for something else, maybe even on a more profitable investment scheme.

Does EPF allow premature closure/withdrawal?

Previously, you could only withdraw money from an EPF account after your retirement. However, the new changes implemented by the EPFO have made the rules less strict.

According to the new rules, an EPFO subscriber is allowed to withdraw the account balance after two months of unemployment. If an employee is terminated from the job due to circumstances beyond his or her control, that employee is perfectly capable of withdrawing the full amount, and the amount will be completely tax-free.

Nowadays, partial withdrawal is granted on specified circumstances such as payment of Interests or mortgages, the marriage of self or someone in the immediate family, higher education of children, illness of self, spouse or dependent children, etc.

EPF current rate of interest

                EPF  Current Rate of Interest

The current rate of interest is 8.50% applicable to the contributions made by both the employer and the employee. The EPF contribution is divided into two categories, such as-

  1. Contribution of the employee, that is, 12% of the basic salary.
  2. Contribution of the employer, which is also 12% of the basic salary of the employee. This 12%, however, is divided into four distinct parts-

Interest cost on EPF for FY 2020-2021

The Interest cost for the monetary year 2020 – 2021 is 8.50%. The amassed store in the PF account draws in a certain premium, which is 100% duty absolved.

The premiums purchased are legitimately transferred to the Employees' Provident Fund account and determined by the Central Board of Trustees (CBT) at a rate pre-chosen by the Government of India. 

The year wherein the new Interest costs are reported Act remains substantial for the following money-related year for example from the year beginning on first April of one year to the year finishing on 31st March of the following year. How about we comprehend this with the assistance of a model:

For example, the pace of interest of 8.50% is legitimate and will be appropriate just on EPF stores made between the money-related long periods of April 2019 to March 2020.

The interest although determined consistently is moved to the Employees' Provident on 31st March of the relevant monetary year.

On the off chance that the commitment isn't made into an EPF represent three years persistently, the record gets torpid or broken.

Interest is offered on defective records of workers who have not achieved the retirement age.

Interest isn't given on the sum stored in out of commission records of resigned Employees.

The premium acquired on defective records is available according to the part's piece rate.

For commitments made towards the Employees' Pension Scheme by the business, the worker will not get any interest. Nonetheless, a benefit is paid out of this sum after the age of 58.