Employees’ Provident Fund (EPF) is a social security scheme maintained by the Government of India. Essentially a retirement benefits scheme for salaried personnel, its main highlight is that it offers a higher rate of return on investment compared to other financial instruments which specialize in investing small savings. Today, the Employees’ Provident Fund Organization (EPFO) manages nearly $130 billion worth of assets.

Here are some pertinent facts about the EPF that a salaried individual should know:

Contribution

Most organizations in India who employ salaried personnel are registered under the EPFO. In such organizations, it becomes mandatory for employees to contribute to the EPF. An employee is required to contribute a minimum of 12% of (Basic Salary + Dearness Allowance). Any additional contribution by him/ her up to a maximum of 100% of (Basic Salary + Dearness Allowance) is credited to the Voluntary Provident Fund (VPF) which also falls under EPF rules. The employer is also required to mandatorily contribute an amount equal to a minimum of 12% of (Basic Salary + Dearness Allowance). This, however, is not considered as an income for the employee. However, the employer considers it an expense in his books of account.

Operational procedure:

• Unique Account Number (UAN)

  From late 2014 onwards, all employees covered under EPF are automatically assigned a UAN. It is a unique number

• Tracking capability

  The UAN can be used to monitor and track all the activities within the employee’s account by visiting the website www.epfindia.gov.in

• Nomination

  At the time of EPF registration, the nominee can be specified. The amount in the EPF account is handed over to the nominee in case of death of the employee. If no nominee is specified, the amount passes over to the legal or natural heirs. The claim for such amount can only be processed and cleared by the last employer

• Change of employment

  In case an employee changes his job; he or she must provide the UAN to the new employer. This ensures that EPF funds are transferred seamlessly and without delay to the new employer and natural contribution resumes

Withdrawing funds

EPF allows both partial and total withdrawal of funds from the account. Partial withdrawal is allowed to help the employee meet important commitments such as purchase/renovation/construction of a residential property, medical expenses, marriage or loan repayment. Withdrawal in other cases is discouraged because EPF is meant to be a long term investment for savings. Complete withdrawal is allowed only on two conditions – the employee must have reached the age of retirement as per his current employer, or he has been continuously unemployed for a minimum period of sixty days.

Tax parameters

Amount mandatorily contributed under EPF rules is exempted at every stage: Under Section 80C and 80 CCD of the Income Tax Act on contribution up to Rs. 1.50 lakhs, the interest earned on the amount contributed and at the withdrawal stage. However, an amount contributed is eligible for all three exemptions only when it has been invested for a minimum period of five years. If the amount is withdrawn before the passage of five years, it is immediately considered as income of the employee and becomes taxable under the employee’s respective tax slab.

Investment safety

The EPFO is under the administrative control of the Ministry of Labor and Employment of the Government of India. As such, both the amount invested and the returns are guaranteed by the government. This makes the EPFO one of the few investment options which are one hundred percent secure.

As a salaried employee, it is important to know how the EPF works. The best source of information on the subject can be obtained by visiting the official website www.epfindia.gov. in to familiarize yourself with the ins and outs of the process fully