What is Provident Fund? A Future Investment Funds

The Employee Provident came into existence after introducing Employees Provident Funds Ordinance on 15th November 1951.

The Employees Provident Fund Bill was introduced in parliament in 1952. It was introduced as the Employee Provident Funds Act, 1952. Now, this act is known as the Employee Provident Funds and Miscellaneous Provisions Act, 1952.

As an employee, there are many things a person should know about Employee Provident Fund (EPF). So, what is a provident fund? EPF is a scene that provides a lump sum payment to an employee on or after retirement.

This scheme was run by the Employees Provident Funds Organization or EPFO. The main aim of EPF is to provide financial security to an employee after retirement.

Further, we study the deep concept of Employee provident funds, their functioning, legality, benefits to employees and employers and many more.

All about Employee Provident Funds

The Employee Provident Funds of EPF is a long-term retirement benefits scheme for employees who work in the private sector.

The Employee Provident Funds scheme is controlled by the Employee Provident Funds Organisation and covered under Employee Provident Funds and Miscellaneous Provisions Act, 1952.

Under this scheme, any organisation with 20 or more employees gets covered under the EPFO. The employees under the EPF scheme should contribute 12% of the scheme’s basic salary and dearness allowance. Under this scheme, the employer should also make an equal contribution for every employee. The interest rate is fixed at 8.5 % for the financial year 2021 by the EPFO Central Board of Trustees.

Under this scheme, the employee gets a lump sum amount at retirement, and the amount the employee receives is the contribution of both employee and employer with interest. The whole contribution does not go to the employee EPF account, Out of 12%, 8.33% go to the employee pension scheme account, and the remaining goes to the employee EPF account.

It is necessary for every employee, who gets a basic salary of less than 15,000/- per month, to be registered under the EPF scheme. A unique Universal Account Number (UAN), a 12 digit number, is given to every employee by the EPFO.

An EPF account remains active as long as contributed by the employee. In addition, the employee can transfer his/her EPF account even after switching to another company.

The EPF is not a single scheme; EPF is three schemes with different benefits.

  • The EPF Scheme 1952 – This scheme gives retirement benefits to the employee.
  • The Pension Scheme 1995 – under this scheme, a pension is given to the employee after 58 years.
  • The Insurance Scheme 1976 – This scheme covers Life Insurance.

The thing is, an employee does not need to register separately under the schemes mentioned above. If an employee gets registered under EPF, the employee automatically gets benefits from the above scheme.

Eligibility Criteria for Employees Provident Fund (EPF)

A person should be a salaried employee with less than Rs. 15,000/- per month, including basic salary and dearness allowances.

  • If the organisation or company has 20 or more employees, they must register under the EPF scheme.
  • On meeting all the conditions mentioned above, it is mandatory to open an EPF account by the employer.
  • If a person has a salary of more than Rs. 15000/- per month, then it is not mandatory to register under the EPF scheme; a person can still register with the employer’s consent and approval of the Assistant Provident Funds Commissioner.

Objectives of Employees Provident Fund Scheme

The prodient fund scheme got introduced to help the public, private or government sector employees financially.

  • By providing a lump-sum amount at the retirement of an employee, which gives social security to the members of the EPF scheme

Benefits of Employees Provident Fund Scheme

The EPF scheme is for the welfare of all salaried persons, contributing to getting retirement benefits. Many salaried people have their savings account and investments, but still many don’t.

So the EPF scheme helps every employee secure their future even after they cannot work anymore.

  • All the interest an employee gets on EPF or withdrawals is tax-free.
  • An employee can get up to 90% of EPF if near the retirement age or have been an employee for two months or more.
  • The monthly contribution for women employees gets reduced to 8%.
  • The employer’s contribution is 12% for any new employee or woman who joined before March 2019.
  • EPF increases the savings of an employee and gives benefits at the age of retirement or secures the employee’s future.
  • An employee can nominate a family member as a nominee of an EPF account to make the pension available after a person’s demise.
  • An employee can withdraw EPF early under conditions like job loss, loan repayment, wedding etc.
  • An employee also gets life insurance under the emplyees provident fund scheme.

Rights and Duties of Employer Under EPF

Rights Of Employer

  • Ask for an ID card from the enforcement officer during the visit.
  • Right to get EPF Number.
  • An employer should approach EPFO for PF related matters.
  • Online services are available for filing returns.

Duties Of Employer

  • Filing monthly returns on or before the due date.
  • Submit the report of a newly joined or leaving employee.
  • Submit the documents of newly joined employees, like Aadhar card, PAN card etc.

Rights and Duties of Employee Under EPF

Rights Of Employee

  • An employee gets claims free of cost.
  • Get guidance in form filling.
  • The right to withdraw PF may be final or partial.
  • Right to get a UAN number.
  • Receive monthly payment of pension.

Duties Of Employee

  • Submit the Aadhar card and other KYC documents to the employer to get registered under the scheme.
  • Submit the nomination form ( Form 2 ).
  • Submit UAN with declaration regarding membership.

Penalties and Offences under the EPF Scheme

  • When a contribution is deducted from the employee’s salary but cannot be contributed in the EPF scheme by the employer, it is a punishable offence, with imprisonment of not less than one year or with a fine or both.
  • Actions that offend the provisions related to inspection payment are punishable with imprisonment, which may extend to three years.
  • Punishment for Committing the offence of false statement or false representation to avoid payment of EPF is punishable with imprisonment, which may extend to one year or with a fine of Rs. 5,000 /- or both.

Budget of 2021

The budget of 2021 on the EPF scheme included two different proposals.

  1. The first proposal was to stop giving interest on inactive EPF (employees provident fund) accounts or those accounts in which there’s no contribution for the last 36 months. It was to pressure employers to deposit contributions on time so employees cannot suffer for their actions.

    And the other motive is to ensure that the employer doesn’t misuse the money for other purposes.

  2. The second proposal is an annual contribution exceeding Rs. 2.5 lakhs will be taxable from April 2021. It only gets applied to the employee contribution, and employers get excluded from it.

Working of EPF Calculator

The EPF calculator is a simulation that shows you the lump sum amount that a person gets at retirement, including the contribution of both employer and employee with interest.

The EPF interest calculator works based on a formula that mentions their age, basic salary with dearness allowances and retirement age. A person can also mention the current balance of the Employees Provident Fund account.

After entering all the details mentioned above, the EPF calculator displays the amount available at the time of retirement of an employee.

Algorithm of EPF Calculator

To understand the EPF calculator algorithm, let’s take an example.

Suppose an employee has a salary of Rs. 14000/- monthly, including basic salary and dearness allowances.

  • Employee contribution to PF is 12% from his/her salary, which is Rs. 1680/- monthly.
  • Employer PF contribution rate is 3.67% from their side, which is Rs. 514/-.
  • And the employer PF contribution rate is 8.33% of the salary of the employee, which is Rs. 1166/-.
  • Now, the total contribution done by employees and employers is Rs. 2194/- per month.
  • And the interest rate which is applied every month is 8.5%/12, which is 0.70833%.
  • An employee gets an interest of Rs. 2194*0.70833%, which is Rs. 15.3 approx every month.

Conclusion

As we study above, what is a provident fund, the whole concept of the EPF scheme is to give financial benefit to the employee after his/her retirement or in difficult times.

This scheme was introduced only for the benefit, which creates a source of investment that may help employees even after quitting a job or retirement.

The scheme works based on the voluntary actions of both employee and employer. Without the contribution of employees and employers, the employee cannot benefit from it. So under this scheme, both employer and employee are bound to perform some actions.

If a company or organisation has more than 20 employees and an employee has a salary of less than Rs. 15000/- per month, then they are bound to be registered under the EPF scheme.

And if the employees are less than 20 or the salary of an employee is more than Rs. 15000/- per month, then it is not compulsory to register under this scheme, but still, a person can take benefit of the scheme.

FAQs Regarding Provident Fund

Who is not included in the EPF scheme?

Employees who get a salary of more than Rs. 15000/- do not need to be registered under the EPF scheme.

Can employer contribution get deducted from the employee's salary?

No, in any case, employer contributions cannot get deducted from the employee's salary.

How can a person check his/her UAN status?

Is interest in EPF taxable?

No, Interest on EPF is exempted from tax because EPF gets deducted from income.

Which form needs to get filled for withdrawal of EPF?

For the final withdrawal of the EPF amount, the form of Composite Claim shall get filled.

If employees are sent to a foreign country to work, can they still contribute to the EPF scheme in India?

Yes, an employee contributes to the EPF scheme in India only if India entered into a social security agreement with that country.

How to contact for grievances related to EPF?

An employee can contact an additional central PF commissioner through an online portal by complaining at EPF official website.

Difference between PF and EPF?

PF and EPF do not differ from each other; PF is the popular name of EPF.

What happens if someone stops contributing to the EPF scheme?

The EPFO stopped giving interest on accounts that had been inactive for more than 36 months or three years.

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