Provident-Fund (Pf)

    What is an Employee Provident Fund?

    The Employee Provident Fund (EPF) is a retirement plan that is subsidized by the Government of India and managed by the Employees Provident Fund Organization (EPFO).Upon retirement, the employee receives the entire contribution with interest. The interest rate is fixed by the Employee Provident Fund Organization every year.

    PF contributions by the Employer and Employee

     

    Components of EPF

    Both employee and employer contribute about 12% of the salary every month in equal proportions. 12% is calculated on a sum of Basic Salary and Dearness Allowance. Two numbers are allotted to employees for the Employee Provident Fund scheme, a Provident Fund Account Number and a Universal account number. The PF number identifies the employee particulars and the company details and scheme particulars. The Universal Account Number stays the same throughout an individual’s employment history, even if they change jobs. A 12-digit numberis given to the members of the EPFO through which the employee can manage their account is known as a Universal Account Number (UAN).

    The employer’s contribution of 12% for FY 22 is distributed as follows:-

    Employers Contribution to% Distributed
    Employee’s Provident Fund3.67%
    Employee Pension Scheme8.33%
    Employees’ Deposit Linked Insurance Scheme0.5%
    EPF Admin charges1.1%
    EDLIS Admin Charges0.01%

    Employer’s contribution is reduced to 10% for establishments where there are less than 20 employees or if losses exceed the net worth of the company.

    Eligibility Criteria of EPF

    • An employee who has a salary above Rs 6,500 is eligible for EPF from the day they join employment.
    • If an employer of an establishment has more than 20 employees, they are obliged to provide EPF membership to their employees.

    EPF interest rate for the year 2022-23

    The EPF interest rate for the year 2022-23 is 8.1%, as fixed by the EPFO. The EPFO reviews and sets interest rates annually. The balance in the account is determined by adding together the employer’s and employee’s contributions at the end of the year.

    • This rate of 8.1% is valid for the period from April 2022 to March 2023.
    • This is the rate applicable for all new deposits made under the Provident Fund Scheme during the particular financial year.
    • A compounding method is used, i.e., the interest for the current month is added to the next month’s opening balance and interest on the total balance is calculated for the next month.
    • The employee will not receive any interest on the employer’s contributions to the Employee Pension Scheme, but they will be paid pensions from it after the age of 58.

    Benefits of having an Employee Provident Fund

     

    Benefits of EPF

    • Tax-free savings: An employee enjoys the benefit of tax-free withdrawals from their Provident Fund at the time of maturity, but if an employee withdraws money before maturity the amount will be taxable.
    • Long-term savings and investment: The accumulated fund under this retirement plan may be used to provide financial security for the retiree.
    •  Easily Transferable: When the employee’s Aadhaar card is linked to their Universal account number, the account becomes easily transferable to their place of new employment.
    •  Insurance benefit: When there is no group life cover, a part of the employer’s contribution provides a limited life insurance benefit.
    • Disability benefits: Minimum monthly pension benefit is available under the Employees’ Pension Scheme. This is sourced from the employer’s contributions.

    Special benefits

    1. During medical emergencies, the employee does not have to continue their contribution
    2. After 3 years of contribution, the employee can take a loan for house construction.
    3. After 7 years of contribution, 50% of the provident fund amount can be withdrawn up to 50%
    4. Loss of employment: If an employee loses his or her job, the funds in this savings plan may be used to meet expenses until he or she finds another job.
    5. Death: The employee can designate a beneficiary to receive the accumulated amount in the event of death.

    Different Forms used in PF

    Different Forms used in PF

    The Different forms used in EPF to communicate with the EPFO include the following:-

    EPF FormUse of the EPF Form
    Form 31EPF Withdrawal
    Form 14Buying LIC Policy
    Form 10DFor claiming a monthly pension
    Form 10CFor claiming withdrawal benefits/scheme certificate of EPS
    Form 11EPF Account Transfer
    Form 19Final Employees’ Provident Fund Settlement
    Form 20EPF Final settlement in case of death of the employee
    Form 2Declaration and nomination form for EPF & EPS
    Form 5 IFClaim as per EDLI scheme
    Form 15GTo save TDS on the interest income on EPF
    Form 5New employees registering for EPF and EPS
    Form 11Auto transfer of EPF

    The important forms are Form 31 for EPF withdrawal, Form 10 D for claiming a monthly pension, and Form 10C, which is used to claim withdrawal benefits and access scheme certificates of the Employee Pension Scheme. Form 19 is for getting the final Employees Fund settlement after retirement.

    What are the three types of schemes under EPFO?

    The three types of schemes under EPFO include:

    • Employees Provident Fund Scheme 1952
    • Employees Deposit Linked Insurance Scheme of 1976
    • Employees’ Pension Scheme of 1995.

    The employers’ contribution is routed to all these three schemes.

    How to calculate EPF?

    If we assume employees’ salary (Basic salary + dearness allowance) is Rs 20,000.

    Employees contribution is 12% = 12% X Rs 20,000 = Rs 2,400

    Employer’s contribution to EPF is 3.67% = Rs 20,000X 3.67%= Rs 734

    Employer’s contribution to EPS is 8.33% = Rs 1666

    Total employer’s contribution is Rs 2,400

    The interest rate for FY 2022-23 = 8.1%

    Monthly interest for FY 2022-23 = 8.1%/12= 0.675%

    The total EPF contribution of employer and employee is Rs 3134

    Interest calculated on a monthly basis would be Rs 3134* 8.1% /12 = Rs 21.15

    Conclusion

    The EPF scheme offers employees the opportunity to save money, but it can be a complicated and time-consuming task for employers to calculate and track each employee’s PF contributions. If you are tired of calculating and tracking your employees’ retirement funds manually, Akrivia HCM Payroll Software can be your helping hand. It automates monthly PF calculation in just one click with an easy-to-use interface, time-saving automation, real-time reporting, and innumerable features.

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