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.