If we ask one about the Employees Provident Fund (EPF), most
common reply will be the EPF is the part of salary in which the employees
contribute 12% of the basic wages and same contribution is to be made from
employer. But EPF is a lot more to know except this.
EPF consists of two aspects which are
-
EPF (Employees Provident Fund)
-
EPS (Employees Pension Scheme)
Out of contribution made by employer, 8.33 percent goes to EPS
with the maximum limit of 541 Rs. Per month and remaining part of Employer contribution
91.67 percent goes to Employees Provident Fund. However, the employee’s
contribution goes only in EPF account.
Employees can get the pension amount only in the case of having
the age of 58 years, completing service of 10 years or making contribution in employee’s
provident account for 20 years. In all
cases, the number of years will increase by 2 for calculating pension amount.
Like if one has contributed for 20 years in EPF account, the number of years will
be considered 22(20+2). In other case, if one is 58 years old and contributed
in EPF account for 25 years, the number of years will be considered 27 while
calculating the pension amount.
EPF not compulsory
Making contribution and having an EPF account is not mandatory. If
one has income more than 6500 per month, one can opt out of contribution on
EPF. But this is one time decision as if you once start contributing on EPF account;
you need to contribute all over service time. This option is for new joiners
who have not contributed year in EPF account.
Not contributing in EPF account means more cash in hand as well as
more purchasing power. But contributing in EPF is always a good option to
retain saving and get a lump sum big amount. Also EPS can bring you some amount
which will be handy. EPF offers 805 percent rate of interest for financial year
2012-13 to EPF account holder as well as provide many benefits.
Withdraw
There are some conditions on the amount withdraw from Employees
provident fund EPF account. One cannot withdraw the entire amount even after 5
or 6 years of service as some part of EPF goes to EPS which has separate rule
for withdraw up to 9 years.
Interest
Only EPF part get interest as well as compounded interest whereas
EPS part doesn’t earn any interest at all.
Illegal to withdraw amount on switching job.
It is illegal to withdraw the amount from EPF account on switching
job as per EPF norms. One can only withdraw the amount after two months of
quitting the job and not joined any new job. One can transfer the amount after
joining any new job.
Withdraw
One can withdraw amount from EPF account only on special occasion before
completing 5 years of service. Withdraw only will be partial on occasion of
marriage or education of account holder, spouse or siblings. After completing
seven years of service, one can withdraw 50 percent of the EPF account only
three times in working period. However one can withdraw six times of the salary
in case of medical treatment of account holder, spouse, parents, children or
dependent.
One can also withdraw the money from EPF account in the case of
repaying a house loan but for than 10 years service condition is mandatory. One
can withdraw 36 time of the salary from EPF account for repaying the house loan
for a house owned by the account holder or spouse or on joint names.
One can also withdraw the amount from EPF account for repair or
alteration of the house. The minimum service time is 5 years for alteration and
10 years for repairing the house owned by self or spouse or joint named. One can
withdraw the amount only once and 12 times to your salary.
Voluntary contribution
An employee can invest more than 12 percent of the basic salary in
EPF account. 12 percent on basic is must and above it, employee will as how to
invest. Employee will get interest on the extra invested money. But employer is
not bound to match the contribution as employer will only invest 12 percent as
basic.
New rule
A new rule is inserted by the employees provident fund organization
(EPFO) and according to that new rule contribution will deduct not only basic
pay but including other remunerations. This means employees get more money but
less cash in hand. More info is available here.
Life insurance
If employer doesn’t provide extra, EPFO department provides life
insurance to all the employees covered under employee’s provident fund. Small premium
of 0.5 percent of basic pay with capped of 6500 need to pay by the employees
with a life insurance cover of Rs. 60000.
