Employees’ Provident Fund or EPF is a scheme managed by the government that promotes savings for professionals employed in the service sector. Under this scheme, the employee has to pay a certain amount of money towards the scheme. The employer also contributes the equal amount and the interest is paid on both employee’s and the employer’s contribution
Universal Account Number (UAN) is a 12 digit number which is provided to each member of the Employees’ Provided Fund Organisation (EPFO) through which he can manage his PF accounts. This number is issued by the Ministry of Employment and Labour under the Government of India. It helps the person to get all Provided Fund (PF) information in one place irrespective of the organization he works for. UAN, as a universal number, helps the member to assemble all his PF accounts associated with multiple IDs of different organizations at one place. With the help of UAN, the employee can easily withdraw and transfer funds.
2. EPF Withdrawal
EPFO has made provisions for its members to claim their money from PF accounts online. As per the new rules, EPFO has made it compulsory for all to file claims online when the withdrawal amount exceeds ₹ 10 Lakhs. Amounts less than ₹ 10 lakhs can be claimed both online as well as offline. In order to file claims online, the member has to first get his KYC documents (Aadhaar and PAN) digitally signed by the concerned authorities (in this case, UIDAI and Income Tax Department respectively). A member can apply for withdrawal by filling forms 31, 19 and 10C.
3. EPF Contribution
Both the employee and the employer contribute towards the EPF scheme equally. The employee pays 12% of the combined total of basic pay, dearness allowance and retaining allowance. Here, only a part of the employer’s contribution is sent to the EPF account whereas 8.33% of the employer’s contribution is directed towards the Employees’ Pension Scheme. This rate is applicable for establishments having more than 20 employees. In case the employee works in an organisation having less than 20 employees, the contribution for both parties is 10%.
4. EPF Auto Transfer
When an employee switches a job, the new organisation opens a new PF account for him. The employee has to then transfer the fund from his previous EPF account to a new one. Form 13 had to be filled for transferring the amount into the new PF account. However, EPFO has made provisions through which the member has to fill a composite form 11 for transferring the PF automatically into the new PF account.
5. EPF Interest Rate
The interest rate offered by EPFO to employees is currently 8.55%. The Ministry of Labour and Employment has reduced the interest rate for the current fiscal by 10 basis points. The Ministry of Labour and Employment analyses the scenario and decides the interest rate provided to members for the next financial year. The interest is calculated on the basis of monthly running balance of the employee.
6. Online Facilities
EPFO has eased the method of availing various services by EPF members. Users can simply login to their EPF account using their UAN and avail a number of services such as EPF withdrawal, fund/account transfer, KYC updating, balance enquiry, etc. The employee has to register on the EPF member portal first using his UAN and create a password. He can then login to his account to avail available online services. All online services are free of cost and the employee can access them 24 hours a day. However, it is mandatory to submit PAN and Aadhaar before applying for an online claim or withdrawal.
7. Employees’ Provident Fund Advances
The primary aim of EPF is to provide a substantial amount of money to the employee at the time of retirement. However, EPFO allows users to withdraw funds before retirement as well. Such amount withdrawn is known as EPF Advances. The fund can be withdrawn for following reasons – buying a new house, repaying your home loan, medical requirements, and marriage of children or their education. The amount of money that would be disbursed depends on some specific criteria such as number of years in service, etc. It is not necessary to repay the amount withdrawn. If you have seeded your Aadhaar and PAN already with your UAN, you can fill the form online at the EPF member portal and withdraw your amount without taking approval from your employer.
Here are 10 key points to keep in mind as you consider withdrawing your EPF
Income tax on EPF withdrawal
- EPF withdrawal is taxable if an employee does not render continuous services for a period of at least five years.
- I case the period of continuous service is less than five years, then the employer’s contribution to EPF as well as the interest earned on it is taxable under the head ‘salary’ in the subscriber’s income tax return.
- It is to be noted that there are four parts to any EPF contribution – employee contribution, employer contribution, and the interest earned on both the employer and employee contributions.
- If the amount is more than Rs 50,000, and the period of service is less than five years, the subscriber can submit Form 15G/15H to avoid TDS in cases where the income for that year is below the taxable limit. Form 15H is for senior citizens (60 years and above) and Form 15G is for individuals having no taxable income.
- If the total period of service is less than five years, accumulated EPF balance withdrawn becomes taxable in the financial year of withdrawal.
- The subscriber’s own contribution is not taxable. But if the subscriber had claimed a deduction under Section 80C on his contribution in earlier years, it becomes taxable under salary. Here, it is to be noted that the EPFO subscriber’s own contribution towards EPF is eligible for deduction under Section 80C of the Income Tax Act.
- In case of withdrawal before five years, the interest earned on the subscriber’s contribution to EPF is taxed under ‘income from other sources’.
- In case of a job switch, if EPF is transferred to another employer, the new employer’s period of employment is also included when calculating the continuous period.
- On withdrawal before five years of continuous service, TDS will be levied at 10%.
- But in a few cases, such as if the amount is less than Rs 50,000 or the employer is closing down the business, TDS is not levied.
Source: Value Research Online