When you retire from your job, your salary stops, but your expenses don’t. In fact, the cost of living and expenses rises after retirement. So, if you want to ensure that your daily expenses are taken care of and that your lifestyle is maintained as before, a good retirement corpus is absolutely necessary. This is where Employee Provident Fund can come to your aid.
1. What is the Employee Provident Fund?
The Employee Provident Fund (EPF) is a scheme that helps people save up a sufficient corpus for retirement. The plan was introduced with the Employees’ Provident Funds Act in 1952 and is today managed by the Employees’ Provident Fund Organisation (EPFO).
In this scheme, an employee has to contribute 12% of their basic income towards the fund every month. The employer matches this amount with an equal contribution. When you retire, you receive the total amount (personal as well as the employer’s contribution) as a lump sum along with interest. The EPF is regarded as a low-risk investment as the Government of India manages it and assures a fixed rate of return.
Companies with a minimum of 20 employees must maintain EPF accounts for their employees. Some companies with fewer than 20 employees also adopt the EPF scheme. We shall discuss this in detail later on.
Also, the provision of an EPF account is compulsory for employees with a salary of less than ₹15000. That said, most companies provide the facility to all employees regardless of their salary. And if you move from one job to another, you can transfer your EPF corpus easily. This is possible through something known as the Universal Account Number.
2. Deciphering the EPF Monthly Contribution
As mentioned above, both the employee and the employer need to contribute equally to the EPF account every month. But the actual amount you add to your EPF account every month is calculated on your basic salary in addition to your dearness allowance and your retaining allowance.
For most employees, the contribution rate is 12%. But there are certain circumstances where a 10% rate is applicable. For example, if a company meets the following criteria:
Has less than 20 employees
Suffers losses that are more than its entire net worth
Belongs to the jute, beedi, brick, coir or guar gum industry
Another distinct case is that of women employees. As per the 2018-19 Union Budget, new women employees could contribute only 8% (instead of 12%) towards their EPF account for the first three years of employment. This was done for two reasons:To encourage companies to hire more women
For women to get a higher take-home pay.
And though women employees can contribute 8%, the applicable rate of contribution for employers continues to be 12%.
We have discussed all the different investment provisions available under EPF. But what if you want to contribute more than 12% towards your EPF? Well, you can do it through something known as a Voluntary Provident Fund (VPF).
3. A Quick Brief on the Voluntary Provident Fund
Like the term suggests, the Voluntary Provident Fund (VPF) is a voluntary fund contribution you make towards your provident fund account. This contribution is beyond the 12% contribution you make towards your EPF. You can make a maximum contribution up to 100% of your Basic Salary and Dearness Allowance and earn interest at the same rate as that of the EPF. However, the employer does not have to match this voluntary contribution.
We shall talk more about the VPF later on. But for now, let’s take a look at other salient features that EPF has to offer.
4. EPF Rate of Interest
Currently, the prevailing rate on EPF deposits is 8.01%, which is the same for VPF. The EPF rate of interest is reviewed every year. The following table shows how the interest rate on EPF has changed over the past six years:
| Year | EPF interest rate |
|---|---|
| 2021-22 | 8.01% |
| 2020 – 21 | 8.50% |
| 2019 – 20 | 8.65% |
| 2018 – 19 | 8.65% |
| 2017 – 18 | 8.55% |
| 2016 – 17 | 8.80% |
| 2015 – 16 | 8.80% |
| 2014 – 15 | 8.75% |
5. EPF Tax Benefits
EPF investment comes under the category of Exempt, Exempt, Exempt (EEE) with regards to tax. It enjoys the EEE status as contributions are deductible from income. No tax is applicable on the amount of money you invest, the interest you earn or the amount you withdraw at the end of its maturity. However, this tax benefit is not available if you withdraw your investment before the completion of 5 years. VPF falls under the EEE category too and offers the same tax benefits as that of EPF.
6. EPF Withdrawal
Every month, you divert a small portion of your salary into your EPF account. Over years, these contributions (along with that of your employer) grow into a large corpus. And as we have already discussed, the aim of this entire exercise is to ensure that you have a substantial corpus to take care of your financial needs during retirement. When you become 58 years old, you can extract 100% of your EPF corpus. In addition, the EPF Act also allows you to withdraw 90% of the corpus one year before retirement (provided that you are not less than 54 years old).
There are also other exceptions when you can make partial withdrawals from your EPF account. These emergencies include –
- Medical expenses
- Marriage
- Housing loan repayment
- Purchase of a house/ land
Remember, you can make these partial withdrawals only after the completion of five years. Also, in case the EPF account holder passes away, the nominee can claim the corpus of the subscriber’s EPF.
7. EPF Withdrawal in Case of Unemployment
In case you resign from your job and you remain unemployed for a month, you can withdraw up to 75% of your EPF corpus to meet your expenses. And if you are unable to find employment after two months, you can withdraw the balance amount. Also remember that you can make use of this feature at any time. You don’t have to wait for a certain number of years before making a withdrawal.
8. VPF Withdrawal
VPF allows partial withdrawals and complete withdrawals. This is a good option to fall back on in case of any unforeseen financial emergencies like paying hospital bills for yourself and/or your family. You can also break your VPF account open for reasons such as:
- Construction or purchase of new house or a residential plot
- Repayment of an existing home loan
- Higher education or marriage of child
VPF is quite popular among investors because the accumulated amount can be withdrawn at any point in time. But ensure that your account is active for five years at least if you want to avoid paying tax on the maturity amount.
9. What is UAN Number and How to Connect it with EPF Account
The Universal Account Number (UAN) is a 12-digit number, allotted by the Employee Provident Fund Organisation to every employee having an EPF account. The UAN remains constant throughout the life of an employee and is portable.
The primary benefit under the UAN is that you do not need to withdraw your EPF when you change your job. You can transfer your EPF from an old employer to a new one quickly and without hassle. Hence, regardless of the number of times you change your job, you can continue building your EPF corpus without a break.
10. Advantages of UAN to Employees
- You can transfer your EPF balance from an old account to a new one through the UAN.
- Each new PF account with a new job will come under the aegis of a single unified account.
- Whenever you need your PF statement, you can download one instantly – either by logging in using your member ID or UAN or by sending an SMS.
- New employers do not need to validate your profile if the UAN has been Aadhaar and KYC-verified.
- It can be easier to withdraw (fully or partially) EPF online with UAN.
- It is easier for you to ensure that your employer is regularly depositing their contribution in the PF account.
11. How to Check the EPF Balance Online?
You can check the balance of your EPF account, online, in two ways.
Checking your EPF balance through the EPFO website:
You can make use of the EPFO website to view your PF passbook. You can also print the details if you need.
- Visit the site – www.epfindia.gov.in.
- Click to ‘Our services’ and choose ‘For employees’.
- Go to ‘Services’ and select the ‘Member passbook’ option.
- Type your UAN and password to view your passbook.
Although the EPFO provides you with the UAN, your employer must verify and activate it, for you to use these services.
Checking your EPF balance via the Umang application
The Umang app launched by the Government of India is a helpful aid to help you check your EPF balance. Through this app, you can view your passbook, raise a claim, and track the claim. You can register on the app by entering a one-time password sent to your mobile
Checking EPF balance by sending an SMS:
You can view the message in English, Hindi, Punjabi, Gujarati, Marathi, Kannada, Telugu, Tamil, Malayalam and Bengali. If you want to receive the update in English, you send the message mentioned above. If you want it in other languages, use the first three letters of your desired language instead of ‘ENG’. For example, for receiving updates in Punjabi, you type – EPFHO UAN PUN.
The facility is only available after integrating your UAN with your KYC details, i.e. Aadhar or PAN or bank account details.By giving a missed call:
Give a missed call to 011-22901406 from your registered mobile number. You’ll receive an SMS containing your EPF balance. This service is also only available upon the integration of your UAN with your KYC details, i.e. Aadhar or PAN or bank account details.
12. Conclusion
As an employee, you can be assured of a retirement corpus from the EPF scheme. And throughout your career, if you’ve moved jobs, you can be assured of availing the benefits of the provident fund under the same umbrella account, courtesy the UAN. The VPF (if you choose to invest) provides additional protection and cover.
But on the flip side, EPF has certain limitations. When it comes to investment returns, other retirement saving options like National Pension System (NPS) or Equity Linked Saving Scheme (ELSS) have the potential to earn higher returns. In addition, even VPF comes with restrictions. You can make a full withdrawal from your VPF account only at the time of retirement. This can pose a challenge if you want to meet other financial goals in the short term. A good alternative is to invest in NPS or ELSS if you want inflation beating returns for your retirement.
13. Frequently Asked Questions (FAQs)
Visit the EPFO website and log in using the UAN and password.
Click on the ‘Manage tab’ and verify your KYC details.
Visit the ‘Our Services’ section and click on the title that says ‘Claim’ from the drop-down list.
Under the section ‘I Want to Apply for’, choose the type of withdrawal you want to make.
A drop-down box shows you the types of withdrawal you are eligible for.
After selecting the type of withdrawal, your EPF claim is complete. The request is then forwarded to the employer for approval.
Once your EPF withdrawal online process gets approved, the amount gets credited directly to your account within 10 days.
The Universal Account Number (UAN) is a 12-digit number, allotted by the Employee Provident Fund Organisation to every employee having an EPF account Each new PF account with a new job comes under the aegis of a single unified account, through the UAN.
VPF is a useful investment option for salaried individuals. In addition to the mandatory EPF contribution amounting to 12% of the basic salary, you can choose to contribute a higher amount to increase your EPF investment. This can help grow your retirement corpus. An additional benefit is that you can avail tax benefits at all stages: investment, accumulation and also withdrawal.
It is recommended to transfer your accumulated EPF funds into a new EPF account opened by the new employer. As a matter of convenience, the UAN stays constant despite the opening of a new EPF account.
The rules applicable to withdrawals from EPF and VPF are the same. Like EPF, VPF also has a lock-in period of 5 years. However, if you withdraw before completing 5 years, you could be liable to pay taxes. You can withdraw from your VPF account at the time of retirement or resignation. Withdrawals can also be made in case of emergencies such as marriage, medical expenses, home loan repayment or purchase of land or house.
The employer’s contribution to your EPF is tax-free, and your contribution is tax-deductible under Section 80C of the Income Tax Act. EPF, as an investment, enjoys the status of Exempt, Exempt, Exempt (EEE) in taxation.
