Employee Provident Fund (EPF)-Saving Schemes
Employee Provident fund is in a way somewhat related to the Public provident fund that we discussed earlier. This fund is specifically started for the employees of the country who are working across different organizations. The organization that is formed to control and manage this fund is the Employee Provident Fund Organization(EPFO) which is under the control of the government of India.
The main intension of this fund is to secure the lives of the working class people and their dependents in case of premature death of the working person. Mainly aimed at the salaried people in the organized sector, the fund will secure the lives of the person at the old age and also the lives of the dependents in case of premature deaths due to multiple reasons.
The working class are mandated to contribute a certain amount every month to the corpus of the fund and this savings will be useful for the people post-retirement and secure their life post-retirement. The EPF Scheme was introduced under the Employees Provident Fund and Miscellaneous Act of 1952.
Features of Employee provident Fund
- Employee Provident Fund managed by the Board of Trustees which consist of members from all parties that are is the employer, employee and the government. The board of trustees is the main administrative body of the fund. The Board of Trustees comes under the employee provident fund organization which assists the board in all its activities. The EPFO comes under the ministry of the labour and Employment Government of India.
- Employee provident fund contribution must be done equally by both the employer and the employee and the percentage amount that has to be contributed to the fund is 12% of the basic salary every month.
- Every company that has more than 20 people has to register with the EPF for its employees.
- Every Individual whose income is less than 15000 has to mandatorily register in the EPF. and For employees whose income is more than 15000 can register in EPFO voluntarily.
- The Fund that is contributed to the EPFO earns interest every year and will be added to the corpus. The amount of interest that will be credited is decided by the EPFO each year.
Eligibility for EPF
All the salaried employees who are working in private and public organization within India are eligible for the benefit of having an EPF account.
- All companies which have more than 20 employees have to register their employees under EPFO. An organization with less than 20 employees can voluntarily register with EPFO.
- Every salaried person whose income is less than 15000 has to be registered under EPFO. The employees with a salary of more than 15000 can register voluntarily in EPF.
Benefits of having an EPFO account
- Employee provident fund will have a good interest rates and is a good option to build your corpus for your retirement needs and pension. The interest rates is around 8.5% which is very much high when compared to almost all of the major banks savings accounts.
- The fund will help in securing the lives of the dependents in times of premature death of the working head of the family. His EPF contribution will help the dependents to secure their lives.
- The EPFO amount comes with Tax savings options. the fund contributed to EPF is tax free and also the interest that is earned is also tax free and hence helps in building a tax free corpus for the retirement needs.
Important points regarding Interest in EPF Fund
- Interest Rate of EPF Scheme The Employee Provident Fund offers a pre-fixed interest rate which stands at 8.55% for the fiscal year 2019 – 2020. The interest amount accumulated on the investments made in the PF online account is tax-free.
- The rate of interest will apply only on EPF deposits which are made between the financial year April month of this year to March month of the next year. The interest amount on the EPF is calculated monthly and will be transferred to the Employees’ Provident Fund account every year on March 31 of the applicable financial year.
- If any kind of contribution is not made into an EPF account for thirty-six months continuously, then that account will become dormant or non-operative.
- The transferred interest amount of the EPF (yearly ones) will be summed up with the next month i.e. April’s balance and it will again be used for calculating the interest.
- The interest will be offered on the non-operative accounts of employees who have still not attained the retirement age.
- The interest earned on the non-operative accounts is subject to income tax based on the member’s tax slab rate. Interest will not be provided on the amount which will be deposited in an inoperative or non-operative account of the retired employees.
- Any kind of contributions made towards the Employees’ Pension Scheme by the employer, the employee will not fetch any interest. But a pension is paid out of this amount after an employee attains 58 years.
- Employees can calculate the interest amount accumulated in the EPF account at the end of a given financial year and this amount will be added along with the contributions made by the employer and employee at the end of the year to arrive at the total balance accumulated in the account.
- The interest in the operative provident fund account of employees will be paid only to those who are yet to retire. But the accrued interest on such accounts is eligible to be taxed based on the EPF employee member’s tax slab.