What is Provident Fund?

Provident Fund aims at providing social security to the individual after retirement. Withdrawal from the account of provident fund is only applicable after the completion of the maturity period.

Benefits of Provident Fund

Apart from providing financial security to the individual after retirement, there are many other benefits offered by the provident fund. Let’s take a look at the benefits offered by the provident fund.

Tax Benefit

The employee contribution towards the PF account is eligible for tax exemption under section 80C of Income Tax Act 1961. Moreover, the interest in pf is also exempted from income tax. Under the provident fund, the employee can get a tax exemption up to the maximum limit of Rs.1.5 lakhs. Also, according to the experts, the employee provident fund account continues to gain interest even if the account remains dormant for more than 3 years. Moreover, if the employee makes a withdrawal from the PF account after the completion of 5 years of continues employment, and then no tax liability is attracted. However, if the employee makes a withdrawal before the completion of 5 years then the amount will be taxable. Also, the employer’s contribution and PF interest rate will be added to the employee’s income and will be taxed accordingly. 

Lifelong Pension

While employees and employers both contribute 12% of income in PF account, 8.33% of the employer’s share is contributed towards Employee Pension Scheme (EPS). As per the retirement fund body, 10 years of contribution towards EPS ensures lifelong pension.

Insurance Benefit

Employee Provident Fund Organization (EPFO) offers insurance coverage under Employee Deposit Linked Insurance Scheme (EDLI). Under this scheme, the registered beneficiary receives a lump-sum amount in case of the demise of the insured person, during the tenure of service. The Employee Provident Fund Organization has increased the minimum assurance limit under the scheme up to Rs.2.5 lakhs from Rs.1.5 lakh. Any employees who have EPF account are eligible for this scheme. Under this scheme the employers’ contribution stands at 0.5% of the basic salary and no contribution is needed by the employee towards the scheme. In case, there is no other group insurance scheme then the maximum contribution is made up to Rs.15,000 per month.

Premature Withdrawals

Unlike before, the premature withdrawal from PF account has been eased up to a great extent. Earlier the withdrawal was only applicable at the time of switching jobs, retirement or under a special occasion. Moreover, there was a lot of restriction on the amount that could be withdrawn. The government has now simplified the PPF Account Rules to withdrawal.

An individual can make a premature withdrawal from the PF account if he/she has not switched the job within two months from the date of resignation. However, in case the individual gets a job opportunity abroad then this two months period can be ignored. Moreover, for new mothers 2 months period becomes invalid in case they quit the job.

One can make PF withdrawal under special occasion such as repaying the home loan, medical emergencies, marriage, etc. However, there are certain restrictions on the amount of withdrawal.  The complete withdrawal of PF account is applicable only in a specific condition such as after reaching 55 years of age, retirement, total or permanent disability and permanent relocation from India.

Types of Provident Funds

Provident Funds are majorly divided into two categories:

Employee Provident Fund (EPF)

The Employees’ Provident Fund and Miscellaneous Act 1952, introduced EPF savings scheme with an objective to secure the retirement future of the individuals. The EPF is administered by Central Board Trustees which consist of a representative from mainly three parties i.e. government, employers and employees. The Employee Provident Fund Organization (EPFO) assists the EPF board into its activity and is managed through the Minister of Labor and Employment.

In Employee Provident Fund (EPF), equal contribution of 12% of each employee’s salary (basic+ dearness allowance) is made by the employers and employees to the EPF account. The contribution made the employers and employee earn a fixed level of interest as set the EPFO. The total accumulated amount along with the amount of the interest received at the time of deposition is entirely tax exempted.

Features of Employees Provident Fund Account:

Let’s take a look at the features of the EPF account:

• The employer and employee both are required to contribute 12% of (Basic salary + Dearness Allowance) to the EPF account.
• The employees’ contribution of 12% is entirely credited in the EPF account, while out of 12% of the employer's contribution, 3.67% is credited in the EPF account and the rest 8.33% is credited in the employee pension scheme.
• An individual can voluntarily choose to contribute more than 12% towards EPF account.
• Currently, the PF interest rate applicable on EPF is @8.55%, which is available on the official website of EPFO.
• The employee can make a partial withdrawal from the EPF account for the purpose of:-
  • Education of self, children or sibling or marriage.
  • Emergency medical expenses for children, spouse, self and dependent parents.
  • Repaying of housing loan. One can make this partial withdrawal only in case of completion of 10 years of service and contribution to EPF.
  • In case the individual completes 7 years if service then they can make a withdrawal of 50% of their EPF contribution up to 3 times in working life.
• 12 digit UAN number is provided to the EPF account holder. The UAN number remains the same even if the employee changes the job. The individual can use the UAN number to view the details of all the accounts held by them with different establishments.
• In case of default payment of PF contribution, the penalty is paid by the employer at the given rate.

Public Provident Fund (PPF)

The Public Provident Fund Act, 1968, governs the Public Provident Fund Scheme. As backed by the government of India, the major objective of the PPF scheme is to encourage the habit of savings among a salaried individual along with the benefit of tax saving. The contributions made towards the PPF account are eligible for tax exemption under section 80C of Income Tax Act 1961. Any individual residing in India can open a PPF account. One can open a PPF account with a minimum contribution of Rs.500. The interest earned towards the PPF contribution and the amounts received at the time of maturity are also exempted from tax under the section of Income Tax Act.

Features of Public Provident Fund (PPF) Account:

Let’s take a look at the features of Public Provident Fund (PPF).

• One can open a PPF account with any public sector and private sector bank such as SBI, PNB, ICICI, HDFC, etc. or post office.
• An individual can also open a PPF account on behalf of the minor.
• The current PPF interest rate offered by all the banks on the PF account is 8%.
• The NRIs cannot open a PPF account.
• An individual can open only one PPF account.
• One can start the PPF account with the minimum deposition of Rs.500 and can deposit up to a maximum of 1.5 lakh in a financial year.
• One can make a contribution towards the PPF account via cheque, cash, online transfer or DD.
• The public provident fund offers a term period of 15 years. Thus, the account matures after the completion of 15 years from the time when the account was opened.
• Any contribution made by the individual towards the PPF account is eligible for tax exemption.
• The PPF interest rate is exempted from tax under section 10(11) of the Income Tax Act.
• The PPF account offers the facility of obtaining a loan. The loan can be availed against the PPF account from a 3^rd financial year up to a 6^th financial year.
• The PF interest rate applicable on loan is taken against the PPF is 2% higher than the existing PF interest rate on PPF account.
• The loan taken by the individual against the PPF account can be repaid either in installment or on lump-sum within the time period of 36 months.
• One can transfer the PPF account from post office to bank and vice versa.
• PPF account does not allow premature withdrawals, except in case of the specific situation.
• In the event of the demise of the PPF account holder, the PPF account proceeds can be claimed by the nominee or the legal heirs.
• If the individual wants to continue the PPF account subscription beyond the tenure of 15 years, then he/she can extend the subscription for another 5 years period. The extension can be made with or without contribution.

How to Check PF balance

One can check the provident fund balance online in a simple and hassle-free way by following a few simple steps. The EPF balance can be checked by using four different methods. These are:

• Using EPFO Portal
• By Sending SMS
• Giving a Missed Call
• By Using EPFO App.

Using EPFO Portal

In order to check the EPF balance, it is important that the employee should have an active Universal Account Number (UAN). Once the UAN number is activated, then he/she can follow these simple steps.

Step1-

• Visit the EPF website at www.epfindia.gov.in
• Login to the EPFO portal and go to the ‘our service’ tab. From the drop-down menu, choose the option of that says ‘for employees’.
• Now under the option of “services” click on the option of “members’ passbook”.
• A login page will appear. The employee will be required to enter the UAN number and password and the captcha.
• After clicking the enter button, the employee can access the EPF account.

By Sending SMS

It is important to join in the UAN number with the KYC details i.e. Aadhar, PAN or details of a bank account. Only by joining the KYC details with the UAN number, the individual can access EPF balance via SMS.

Once you integrate the UAN number with the KYC details, you will be required to follow the below-mentioned steps.

Step1- Send an SMS to the mobile number 7738299899.

Step2- You will be required to send the SMS as EPFOHO UAN ENG, wherein ENG stands for the English language.

Similarly, this facility can be availed in Hindi, English, Punjabi, Gujarati, Marathi, Telugu, Tamil, Kannada, Bengali and Malayalam language.

By Giving Missed Call

An individual can know their EPF balance by giving a missed call to the authorized phone number from the registered mobile number. Remember that in order to do so, it is important that your UAN number should be integrated with the LYC details.

Step1- Give a missed call to 011-22901406 from the registered mobile number.

Step 2- Once you place the missed call, an SMS will be sent to you providing the PF details.

By Using EPFO App

In order to check the EPF balance makes sure that you have an activated UAN number. You can also download “m-sewa app of EPFO” from the google play store.

Step1- Once you download the app, click on a member and then go to ‘passbook/balance’.

Step2- Then enters your UAN and registered mobile number. Your mobile number will be verified against the UAN number. Once the verification is complete, you can check the updated EPF balance details.

PF Interest Rate

The PF interest rate for the financial year 2017-18 is 8. 55%. The interest is applicable to the accumulated fund in the PF account is 100% tax exempted. The interest received is directly transferred to the account of the employees’ provident fund and is computed as per the rate pre-decided by the government of India and Central Board of Trustees.  The interest rate announced in a particular year stays valid until the next financial year. Let’s understand the PF interest rate in a more detailed way.

• The PF interest rate of 8.55% is applicable for EPF deposits made in the financial year from April 2017-March 2018.
• Even though the PF interest rate on a monthly basis, it is transferred to the provident fund account of the employee only on a yearly basis.
• In case no contribution is made in the EPF account for continues 36 months then the account becomes inoperative or dormant.
• Interest on PF is applicable even in the dormant account of the employee who has not reached the retirement age.
• PF interest rate account which is dormant attracts taxes as per the member’s tax slab rate.
• The employee does not receive any interest on the contribution made by the employer towards the employees’ pension scheme. However, under this scheme pension is paid out after the age of 58.

Historical PF Interest Rates

PF Contribution

Based on the entity that contributed towards the EPF account, the EPF Contribution comprises two parts i.e. ‘Employees contribution’ and ‘Employers contribution’.

The employer and employee both are required to contribute 12% of (Basic salary + Dearness Allowance) to the EPF account. In case the company has less than 20 employees then the employee has to make a lower contribution of 10%. Moreover, this is also applicable for industries like brick, jute, beedi, guar gum factories, and coir.

The employees’ contribution of 12% is entirely credited in the EPF account, while out of 12% of the employers' contribution, 3.67% is credited in the EPF account and the rest 8.33% is credited in the employee pension scheme. Moreover, the employers also make a contribution of 0.50% towards Employees’ Deposit Linked Insurance (EDLI) account of the employee.

An additional charge is paid by the employer for administrative accounts at a rate of 0.50% which is effective from 1st June 2018. The minimum administrative charge of Rs.500 is applicable. In case no contribution is made towards the EPF account for a specific month then a fee of Rs.75 is paid by the employer for that month.

How to Calculate Interest on PF

The PF interest rate is computed per month but the deposition is made in the account at the end of the financial year.  Let’s check this example in order to have a better understanding of how interest on PF is calculated.

Basic Salary + Dearness Allowance = Rs.15,000

Employees contribution towards EPF= 12% Rs.15,000= Rs.1,800

Employers contribution towards EPF=8.33% of Rs.15,000= Rs.1,250

Employers contribution towards EPF= Employee contribution –employers contribution towards (Employee Pension Scheme) = Rs550

Total EPF contribution per month = Rs.1,800 + Rs.550= Rs2.350

The PF interest rate for 2017-2018 is 8.55%

While computing the interest, the PF interest rate applicable every month is= 8.55%/12= 0.7125%

Assuming that the service was joined by the employee on 1st April 2017, the contribution in EPF account starts from year 2017-2018 from April

Important Points to Know About PF Withdrawal

An individual should ideally make withdrawal from the provident fund or employee provident fund account only at the time of retirement. The EPFO provides the facility to the subscriber wherein they can transfer the money from old EPF account to the new EPF account without withdrawing the money. However, the EPFO offers the facility of partial withdrawal. Let’s take a look at the important points that should be considered in case of partial withdrawal.

• The employee can make partial withdrawal from the EPF account for the purpose of:-
  • Education of self, children or sibling or marriage.
  • Emergency medical expenses for children, spouse, self and dependent parents.
  • Repaying of housing loan. One can make this partial withdrawal only in case of completion of 10 years of service and contribution to EPF.
  • In case the individual completes 7 years if service then they can make a withdrawal of 50% of their EPF contribution up to 3 times in working life.
• An individual can apply for withdrawal only in case he/she is unemployed for at least 2 months.
• In case the employee has made a contribution towards EPF for more than 5 years then the amount received on withdrawal are applicable for tax exemption.
• If the employee transfers the EPF account from the old employer to the new one then the account will be considered as continued employment.
• In case the individual makes a withdrawal from the EPF account before the completion of 5 years, then the withdrawal amount will be taxable during the same financial year.
• The interest earned on employee contribution towards the EPF account is eligible for tax exemption under section 80C of Income Tax Act.
• In case of default payment of PF contribution, the penalty is paid by the employer at the given rate.
• The individuals are required to fulfill certain eligibility criteria if they want to make a partial withdrawal or take advance from the EPF account.