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Useful articles for your finance management by our team of experts

Eight hidden facts about Employee Provident Fund (EPF)

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EPF Facts

Employee provident fund (EPF) is a popular savings product in India. Almost every employee is a member of this savings scheme. Employees also love to know more about this scheme. For many such employees, here are 10 hidden facts about Employee Provident Fund (EPF).

1) EPF withdrawal is taxable

Withdrawals made from EPF account within 5 years of continuous service are actually taxable. Continuous service does not mean you have to stay with a single organization. You can also shift to another company and transfer your existing EPF account to the new organization. Hence, it is advisable not to withdraw EPF amount for vacations and other similar reasons as it will help you amass decent corpus for your post retirement life.

2) You can even opt out of EPF

Yes, EPF is not mandatory for an employee. It is only mandatory for the employer to provide this option to the employees upon meeting certain criteria. However, if you feel you do not want to be part of this saving scheme, you can definitely opt out of this. You might wonder if there is anyone who doesn’t like this scheme and hates to be a part of it. There are people who prefer NPS to EPF as it has generated better returns due to equity exposure. It is not advisable to do this, unless you are a disciplined saver and can continue with NPS for a long time without dipping into the savings.

(Also see: Top 10 EPF FAQs)

3) EPF also has pension and insurance

EPF has two more aspects – pension and insurance. Out of each contribution (12%) that you make, 8.33% goes to EPS (Employee Pension scheme) account which is used to generate pension for the employee post retirement. Apart from this, employee is also covered for some insurance in case unforeseen event happens while he/she is in service. This insurance amount ranges from Rs. 5000 – Rs. 2,00,000 and varies with the deposits made by the employee.

4) You can contribute more than 12% of basic

A lot of employees contribute only 12% of basic towards EPF account, which is a standard practice. However, only few know that this contribution can be increased up to 100% of (basic + da). Remember that employer is not bound to contribute beyond 12% even if you contribute more.

5) EPF is mandatory if organization has more than 20 employees

Every company which has more than 20 employees should register with EPFO and allow contributions by employees towards EPF savings scheme. Once a company starts this process, EPF cannot be stopped if the number of employees goes below 20. This scheme should be available if it satisfies such conditions even if it is not mentioned to you at the time of joining.

(Also see: EPF vs PPF – Which is better?)

6) Highest interest rate declared by EPF was 12% p.a

Till date, highest interest rate declared by EPF was 12% p.a. in the period 1990-2000. However, it has not stayed the same. The lowest rate was 3% p.a in the years 1952-55. Interest rates vary depending on the surplus available in the EPFO account.

7) No age limit for EPF but 58 years for EPS

Yes, it is indeed an interesting fact that there is no real age limit for being a part of EPF. If all conditions satisfy, you can start EPF contributions even after 60 years. However, for being eligible under EPS scheme, you should not be over 58 years of age. Hence, all your contributions post 58 years will only go towards EPF.

8) Nomination can be done for EPF

You can nominate your spouse or children under EPF scheme. This will ensure smooth transition of your EPF and EDLI amount in case of your demise. Persons without a family can also choose any one person of his choice.

  • http://lacumen.blogspot.in/ Shadab Ahamad

    Hi Suresh, thanks again for an eye opener blog. Can you please explain the following points in detail.
    2) You can even opt out of EPF

    • Av Suresh

      Thank you, Shadab. EPF is not mandatory for any employee. When you join an organization, you can refuse to be enrolled into the EPF scheme.

      • Ravi Naidu

        Dear Mr Suresh:
        I would like to correct the above info. EPF is absolutely compulsory for those with monthly Basic+DA=Rs.6500 or below; there is no way of opting out of EPF for such employees. Yes, opting option is only for those with monthly Basic+DA=Rs.6501 and above.

        • Av Suresh

          Ravi, as far as I know, the monthly basic+da limit is for the employers. EPFO does not bind employees to this rule.

          • Ravi Naidu

            Dear Mr Suresh,

            I still say that EPF is compulsory for those with Basic+DA=Rs.6500 or below.

            Following is a re-production of EPF Scheme (Act):

            Para-26 (1):
            (a) Every employee employed in
            or in connection with the work of a factory or other establishment to which this Scheme applies, other than an excluded employee, shall be entitled and required to become a member of the Fund from the day this paragraph comes into force in such factory or other establishment.

            Thus, those whose Basic+DA (at the
            time of joining service) is Rs.6,500/- or below, must and should enroll as PF
            member. It is not legally permitted to opt out. In fact, once enrolled, one can’t even come out of EPF even if Basic+DA exceed 6500, unless Resigned, superannuated, going abroad etc.

            For enhanced knowledge, who is an
            “excluded employee” is described below:

            Para-2: (of EPF Scheme):

            (f) “excluded employee”
            means-

            (i) An employee who, having been a Member of the Fund,
            withdrew the full amount of his accumulation in the Fund under
            clause (a) or (c) of sub-paragraph (1) of Paragraph 69;

            (ii) an employee whose pay at the time he is otherwise entitled to become a Member of the Fund, exceeds six thousand five hundred rupees
            per month;

            Explanation.- “Pay” includes
            basic wages with dearness allowance, retaining allowance (if
            any) and cash value of food concessions admissible thereon;

            (iii) an apprentice;

            So, only “excluded employees” as permitted by the Act are exempted naturally, not by one’s own will.

            Thanks,

          • Av Suresh

            Thank you for the information, Ravi. It seems you are right.

          • Ravi Naidu

            Dear Mr Suresh,
            Thanks, you are welcome. I must thank you and appreciate your initiative to spread such knowledge, by opening up such Blogs and giving your time and attention.

            Regards,

  • Bally

    Hi Suresh,
    I have couple of queries. I was with my precious employer for more than 5 yrs and recently withdrew my PF. As i understand that this is not taxable since this was held by me for more than 5 yrs.
    How do i declare this amount during IT filling ? This income will go under which head ?
    I have been filling ITR-1, would i need to file other ITR for declaring the PF Withdrawl income.
    Thanks / B

    • Av Suresh

      You need to declare it under exempt income’ section of ITR form. You can declare this in the same ITR form.

      • Bally

        Thanks Suresh.

        Would they (IT Deptt) be able to correlate this with the AIR filed by the bank, since i don’t believe i can add additional information about the amount in the form.

        • Av Suresh

          IT dept usually does not verify such things. This is only for their information. You need not add any other information about it.

      • harish ram

        Hi Suresh
        Can you tell me where is the exempted income section of ITR form? I am new to filing income tax on my own. So pardon my ignorance

        • Av Suresh

          Harish, you can find this in the ‘Investment Income’ section of ITR form if you opt for free e-filing from InvestmentYogi.

  • Sudhir

    Hi Suresh,
    Have a few queries

    I am a salaried individual with royalty income and file my returns online. Which ITR should i use for 2014-15

    • Av Suresh

      ITR form depends on income such as salary, business/profession, house rent, other sources and capital gains.

      • Sudhir

        Hi Suresh,
        Need a few clarifications
        I have royalty income from books sold in India as well as internationally.
        1. In the new ITR utility under which heads of income should I add the above?
        2. How do I enter the royalty income for international sales that I have received in Dollars?
        3. I have received from 1042-s that shows my withholding tax
        4. how do I reflect that in my return?
        Thanks in advance
        Sudhir

    • Sudhir

      I have salary income and royalty from authoring management books – exemption under sec QQB

      • Sudhir

        no capital gains, housing loan deduction, FD interest

        • Av Suresh

          You can file ITR-2.

        • Sudhir

          can i use ITR-2 to claim deduction u/s QQB to claim royalty income

          • Av Suresh

            Yes, you can.

          • Sudhir

            thank you so much for your prompt reply

  • AM

    Hi Suresh,

    I have worked in the same organization for 10+ years, and I took a non-refundable loan from PF for constructing a house. The PF amount is credited to my bank account. I understand that withdrawal is completely exempt from tax since I have worked for 5+ years. However, do I need to specify this amount in the “exempt income” section in the ITR form? The employee contribution part of this withdrawal has already been covered because that is already part of the salary income that is declared in ITR in all these years. So, I need to compute the employer contribution + interest on PF income and show that as the exempt income for this year? Can you please confirm?

    One more related question: Are we supposed to declare the employee contribution and interest accumulation details on PF in the exempt income section in ITR for every year, or do we need to declare it only when we withdraw from PF or take a loan?

    Thanks,
    AM

  • asingh

    what is UAN no., how can we hide this in other company with my PF also,

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