Employee Provident Fund-What It Is , What Are The Benefits? | Semantic Taxgen Pvt Ltd
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Employee Provident Fund-What it is , what are the Benefits?

March 29, 2023
Comments Off on Employee Provident Fund-What it is , what are the Benefits?

Employee Provident Fund (EPF) is a statutory fund created and regulated by the Government of India through Employee’s Provident Fund Organization (EPFO), a body corporate. It is a social and financial security scheme which helps commoners, mainly salaried employees, to build a large sum to be spent for various uses after their retirement. EPF contributions and withdrawal after maturity is subject to various tax exemptions and calculations under various acts including Income Tax Act, 1961, which are quite complex to be comprehended by most of us.

Here, in this article, we shall look into various important and noteworthy points related to EPF.

OBJECTIVES OF EPFO:

  • To facilitate smooth savings creation by a large mass of the population.
  • To provide a platform for capital appreciation with negligible risk factors of capital or money market.
  • To make the compliance related to EPF as simple as possible.
  • To ensure the organizations and people involved are following the applicable rules and regulations as made and amended from time to time.
  • To encourage and promote all the employees to comply with such rules voluntarily.
  • To increase the access of more and more facilities online.

BENEFITS OF EPF:

  • Retirement Benefits- This scheme is helpful to employees as a financial security after their retirement.
  • Tax Benefits- The contributions made by employees and their employers towards the EPF are tax free and also liable to deduction under 80C of the Income Tax Act, 1961. This helps to reduce the tax burden on the employees.
  • Social Security- Since this scheme is mainly available to employees, it aims to provide social security to them by providing with a lump sum amount after the retirement.
  • Partial Withdrawal- The EPF scheme allows the employees to withdraw a part of their total accumulated sum in the following events:
    • Higher Education
    • Constructing a house
    • Wedding Expenses
    • Medical Treatment
  • Capital Appreciation: Since the EPF offers a fixed rate if interest as announced by the Central Board of Trustees of EPFO. Currently it is 8.15% for the Financial Year 2022-23.

ELIGIBILITY FOR EPF:

  • The EPF is open to both public and private sector employees which implies that all the salaried individuals are eligible to become a member of EPFO.
  • It is mandatory for any organization which has more than 20 employees to register for EPF Scheme.
  • It is mandatory for employees with less than Rs. 15,000 salary to register for EPF.
  • Organizations with less than 20 employees may also join the EPF on voluntary basis.
  • Employees with more than Rs. 15,000 salary can also become member of EPFO after getting certain approvals.
  • An organization with less than 20 employees can also apply for EPF registration at 10% contribution.

CONTRIBUTION:

  • Employee has to contribute 12% of his Basic Salary and Dearness Allowance towards EPF.
  • Employer also has to contribute 12% of the Employee’s Basic Salary and Dearness Allowance but his contribution has been divided into several categories:
CATEGORY% OF CONTRIBUTION
Employees Provident Fund3.67
Employees’ Pension Scheme8.33
Employee’s     Deposit     Link     Insurance Scheme0.50
EPF Admin Charges1.10
EDLIS Admin Charges0.01

TAX IMPLICATIONS:

  • Investment in EPF is eligible for deduction upto the limit of Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961.
  • EPF is, likewise, exempt on contribution, withdrawal and interest accrued except in following situations when it’s taxable:
  • If excess contribution, if any, from the Employee exceeds 2.5 lakh in any financial year, then the interest earned on the extra contribution is taxable. However, if there is no employer, this limit is increased to 5 lakh.
    • If contribution by an employer exceeds 7.5 lakhs in a year, the excess amount is liable to be taxable in the hands of the employee.
    • If any EPF account remains dormant, then any interest earned on the amount in such account is taxable in the hands of the employee.
    • Pre-mature withdrawal from the EPF is taxable, if such withdrawal is done within 5 years. But these are exempt in cases of poor health, or in situations which are beyond the control of such member.
    • Pre-mature withdrawal of more than 50,000 is also liable to TDS of 10%.

CONCLUSION

  • In conclusion, EPF is a very important instrument for ensuring the financial security of Employees in India. With a huge pool of investments under its management, the EPFO has a significant role in developing Indian Economy. The EPF has also been able to achieve its’ objectives through investment strategies and sound governance. As such, the EPF is and remains an integral part of the retirement plan for uncountable number of salaried employees.

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