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Sunday, June 9, 2013

All about employees provident fund EPF

If we ask one about the Employees Provident Fund (EPF), most common reply will be the EPF is the part of salary in which the employees contribute 12% of the basic wages and same contribution is to be made from employer. But EPF is a lot more to know except this.
EPF consists of two aspects which are
-          EPF (Employees Provident Fund)
-          EPS (Employees Pension Scheme)

Out of contribution made by employer, 8.33 percent goes to EPS with the maximum limit of 541 Rs. Per month and remaining part of Employer contribution 91.67 percent goes to Employees Provident Fund. However, the employee’s contribution goes only in EPF account.

Employees can get the pension amount only in the case of having the age of 58 years, completing service of 10 years or making contribution in employee’s provident account for 20 years.  In all cases, the number of years will increase by 2 for calculating pension amount. Like if one has contributed for 20 years in EPF account, the number of years will be considered 22(20+2). In other case, if one is 58 years old and contributed in EPF account for 25 years, the number of years will be considered 27 while calculating the pension amount.


EPF not compulsory
Making contribution and having an EPF account is not mandatory. If one has income more than 6500 per month, one can opt out of contribution on EPF. But this is one time decision as if you once start contributing on EPF account; you need to contribute all over service time. This option is for new joiners who have not contributed year in EPF account.

Not contributing in EPF account means more cash in hand as well as more purchasing power. But contributing in EPF is always a good option to retain saving and get a lump sum big amount. Also EPS can bring you some amount which will be handy. EPF offers 805 percent rate of interest for financial year 2012-13 to EPF account holder as well as provide many benefits.

Withdraw
There are some conditions on the amount withdraw from Employees provident fund EPF account. One cannot withdraw the entire amount even after 5 or 6 years of service as some part of EPF goes to EPS which has separate rule for withdraw up to 9 years.

Interest
Only EPF part get interest as well as compounded interest whereas EPS part doesn’t earn any interest at all.
Illegal to withdraw amount on switching job.

It is illegal to withdraw the amount from EPF account on switching job as per EPF norms. One can only withdraw the amount after two months of quitting the job and not joined any new job. One can transfer the amount after joining any new job.

Withdraw
One can withdraw amount from EPF account only on special occasion before completing 5 years of service. Withdraw only will be partial on occasion of marriage or education of account holder, spouse or siblings. After completing seven years of service, one can withdraw 50 percent of the EPF account only three times in working period. However one can withdraw six times of the salary in case of medical treatment of account holder, spouse, parents, children or dependent.

One can also withdraw the money from EPF account in the case of repaying a house loan but for than 10 years service condition is mandatory. One can withdraw 36 time of the salary from EPF account for repaying the house loan for a house owned by the account holder or spouse or on joint names.

One can also withdraw the amount from EPF account for repair or alteration of the house. The minimum service time is 5 years for alteration and 10 years for repairing the house owned by self or spouse or joint named. One can withdraw the amount only once and 12 times to your salary.

Voluntary contribution
An employee can invest more than 12 percent of the basic salary in EPF account. 12 percent on basic is must and above it, employee will as how to invest. Employee will get interest on the extra invested money. But employer is not bound to match the contribution as employer will only invest 12 percent as basic.

New rule
A new rule is inserted by the employees provident fund organization (EPFO) and according to that new rule contribution will deduct not only basic pay but including other remunerations. This means employees get more money but less cash in hand. More info is available here.

Life insurance

If employer doesn’t provide extra, EPFO department provides life insurance to all the employees covered under employee’s provident fund. Small premium of 0.5 percent of basic pay with capped of 6500 need to pay by the employees with a life insurance cover of Rs. 60000. 

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