Employee provident fund is administered by EPFO in India, Since bilateral agreements have been signed it covers both workers in India and other countries. EPFO is a statutory government body under the ministry of Labour and Employment, it is the best for salaried people. This scheme is best savings scheme too. In this scheme the employer a makes a fraction of his salary contribute to the scheme monthly. This contribution done by group of people is invested in a trust.
You as an employee contribute 12% of your Basic Pay towards your PF every month. This is typically deducted from your salary before being credited into your Bank. Your employer pays 12% of your basic and adds it to your account. That makes it 24% of your Basic Pay. In addition, the employer contributes to 1.61% towards charges an insurance scheme as explained below.
There are many things about EPF about which we are unaware. This article is about how contributions calculated, EPF interests, pension scheme, etc.
EPF & EPS
EPF, being a retirement benefit scheme, ensures that all salaried employees can save a considerable amount of money spend their retirement days. The scheme allows you and your employer to contribute 12% of your basic salary towards your EPF account. Thus, the total contribution to your EPF account per month is 24% of your basic salary. The amount deposited in your EPF account can be withdrawn when you change job or need money to meet your personal needs. The EPF account can be transferred from one organization other.
It is a pension scheme that offers widow pensions, pension on debasement. Under this scheme, nominees can also receive pensions. Out of the total contribution made by your employer, 8.335 goes toward your EPS account. The amount deposited towards your EPS account is subject to a maximum of Rs. 1250. In order to enjoy the benefit of this scheme, an employee’s basic salary needs to be Rs. 6500 per month.
Contribution to EPF & EPS : 12% of the employee’s salary goes towards the EPF. Whereas the employer’s contribution is divided as below:
1. 3.67% goes towards contribution for EPF
2. 8.33% goes towards contribution for EPS
3. 0.5% goes towards contribution for EDLI
4. 1.1% goes towards contribution for EPF administration charges
5. 0.01% goes towards contribution for EDLI administration charges
Therefore, the employer contribution is 13.61%. The premium and management charges are borne by the employer and the maximum limit is set at 0.5% of Rs. 15,000.
Interest on EPF
The contribution is made to Epf on monthly basis while the interest is calculated annually which is a percent of 8.6% . The interest is calculated at the end of the year.
Whereas EPS is a pension scheme there will be no interest on EPS.
If an employee dies suddenly and EPF don’t know to whom money should be given so they introduced nominee. If the employee dies then the EPF members consult the nominee. The nominee may be mother/father/daughter/son /wife. Nominee not belonging to his family will be invalid.
In EPF there is tax exemption. The employer contribution is exempt from tax and employer’s contribution is taxable but exempted from tax under 80C , income tax act.
Transfer of EPF & EPS
An individual switches jobs and usually transfers the Employees’ Provident Fund (EPF) balance to the new employer. But what happens to the funds in the Employees’ Pension Scheme (EPS) continues to remain a mystery for many. While the PF account number of the new employer shows the transferred EPF balance, what about the EPS money from the previous employer?
- Here are a few pointers on how the EPS works and how one can avail it:
An employee contributes 12 per cent of his basic salary directly towards EPF.
- He does not contribute directly towards EPS.
- Of the employer’s share of 12 per cent, 8.33 per cent is diverted towards the EPS, with a cap of Rs 1,250 (earlier Rs 541) a month.
- When the employee switches jobs, the EPF gets transferred to the new employer, but not the EPS. When the employee switches jobs, the EPS contributions stay with the EPFO.
- The employee has the option to either withdraw the EPS amount or carry it forward to the next job. This, however, depends on the length of his service and his age.
Less than 10 years in job
If an employee has not completed 10 years in service, he can either withdraw the EPS amount, or take the ‘scheme certificate’. If he is still working, but hasn’t completed 10 years,this, however, is not possible. He can apply only after he has quit his job, i.e., before joining another company.
The option to withdraw or take the scheme certificate has to be submitted by filling Form 10C, which can downloaded here . Recently, the EPFO introduced ‘UAN based Form 10C’, which can be downloaded here .
This form can only be used by an individual who has furnished employee details to the existing employer in ‘Form 11-New’, furnishing the Aadhaar, bank details, and after getting the Universal Account Number (UAN) activated by providing a cancelled cheque with name, account number and IFS Code. Currently, UAN based Form 10C can only be used for withdrawal and not for taking the scheme certificate.
If you have worked for less than six months, the EPS contributions cannot be withdrawn as the EPFO rules say that for those who have not yet completed 180 days in the organisation, the withdrawal benefit isnot admissible. One can, however, apply for the scheme certificate.
The employee won’t get the entire contribution (Rs 541/Rs 1,250 a month) back after applying through Form 10C.
Once the employee crosses the age of 50, he or she is entitled to get pension by Scheme Certificate. The employee is required to fill Form 10-D to avail regular pension. If the employee has more than one Scheme Certificate, he or she can directly go to the EPF office. This requires attestation of the employee’s Form 10-D by the bank manager.
For those who joined after 15 Nov 1995 the formula for calculation of Pension is simple. the formula of calculation of pension is, EPS Pension = Average Salary X Number of Years Service 70
Number of Years of Service in calculating EPS Pension
- You are eligible for pension after the 10 years of contributing to EPS. If your number of years are less than 10 you can withdraw your EPS amount.
- Maximum service for the calculation of service is 35 years.
- If you have completed more than 20 years in service then add two years bonus in above equation.
- The fraction of service for six months or more is treated as one year and the service less than six months is ignored. So 9 years and 6 months will be rounded up to 10 years, 15 years 9 months will be rounded to 16 years but 15 years 3 months will be rounded to 15 years.
- If you withdraw your EPS from earlier job, through Form 10C, then earlier years of service will not be counted.
- The Average Salary here means pensionable salary in the scheme.
Pensionable Salary here means amount you were contributing in EPS which is restricted to Rs 15,000 per year after 1 Sep 2014 and was Rs 6500 per year before 1 Sep 2014.
It is arrived by considering the average contributing salary preceding 60 months from the date of exit. (Earlier it was preceding 12 months)
You can invest more in PF
There is a possibility of investing more than the mandatory 12% into PF account and can get returns on it. It is called VPF(voluntary provident fund).