Employees’ Provident Fund (EPF) is a social security scheme for retirement that is available to all salaried employees. It a scheme managed by the Employees’ Provident Fund Organisation (EPFO) under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. A portion of the employee’s basic salary and an equal amount contributed by the employer is deposited in the fund.

These funds are pooled from many subscribers and the money invested is managed by the EPFO. This investment earns an interest between 8 – 12%, as decided by the government. For the financial year 2017-18, the interest rate is 8.55%. Upon retirement, or if unemployed for 2 months or more, the employee gets a lump sum amount (which includes his contributions from salary and the employer contribution, as well as the interest earned).

EPF gives the employee tax benefits on the contribution under Section 80C, interest earned and the amount withdrawn at retirement. The contribution from employee’s salary is tax deductible under Section 80C of the Income tax Act up to Rs 1.5 Lakhs a year and employer’s contribution is exempt from tax. The interest earned and the lump sum withdrawn (under the condition that the withdrawal is after the minimum specified period of 5 years) are exempt from tax.

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New EPF Rules Regarding withdrawal

Earlier, the EPF scheme allowed withdrawal after 2 months from the date of termination of employment. To become eligible for the pension, the employee must have contributed consecutively for the past 10 years. If the account is closed prematurely, the employee would no longer be eligible to receive pension.

Under the new regulations which took effect from June 2018, the employee can withdraw 75% of the available balance from his EPF after 1 month from the date of termination of his employment. He can choose to withdraw the entire amount from his account after two months.

SEE ALSO: Composite Loan and Home Loan Balance Transfer

Other regulations in the works

Until a few years ago, the money from the EPF was invested in fixed income securities like government bonds, and debentures. The situation has changed, with the incremental amounts being invested in the stock market via ETFs, starting at 5%, and now investing 15% of the incremental amounts into the stock market. As equity tends to generate higher returns vis-a-vis debt instruments in the long run, the increased equity allocation fetches higher return on the corpus for subscribers. In the future, the percentage of funds to be invested in the equity market will be at the discretion of the subscriber. Having this choice is very convenient to subscribers, as they can base decisions on risk-appetite and time remaining till retirement. Members with a higher risk appetite can opt for a higher equity allocation and risk-averse members choose a higher proportion of debt. Members in the early stages of their career can opt for a higher equity proportion and enjoy the compounding benefit.

For many subscribers, the Employees’ Provident Fund (EPF) is the only retirement plan. Regular contributions and the interest earned on the fund is the only financial offering that they receive at the time of retirement. Unfortunately, members withdraw from the corpus much before retirement which severely handicaps the intended benefits of the EPF. Members can now withdraw 75% of the fund in case of job loss after a month and the remaining 25% after two months from the date of termination of job. According to many Financial Planners, placing restrictions on withdrawals will ensure that the fund is not compromised at the time of retirement. Placing restrictions with a certain degree of flexibility for cases of emergency or crisis ensures that the retirement benefit isn’t affected. Events like your marriage or that of close family, Education, medical emergencies, down payment on house or land and so on can be allowed as reasons for premature withdrawal.

Often, the basic pay of the employee forms a small part of the total salary structure with the remaining going towards various allowances. 12% of this basic pay goes towards the EPF and an equal amount is contributed from the employer. Discussions on implementing a cap of 50% towards allowances will ensure that basic pay forms a major part of the salary structure, which in turn increases the contribution towards EPF. This results in a higher corpus available to the member at the time of retirement, ensuring a secure post-retirement life.

PF Withdrawal

What is EPF? Employee Provident Fund (EPF) is a scheme in which employees deposit a small portion from his/her salary (12% of the basic pay + Dearness Allowance) each month. Employer too is required to contribute the exact same amount each month towards employee EPF. PF scheme was developed in 1952 to secure employees’ post retirement life. Employees drawing a monthly salary of less than Rs 15,000 must register for EPF. Employees drawing a monthly salary of more than Rs 15,000 can register with approval from the PF commissioner.

How does PF scheme work? Employees must deposit 12% of their basic pay and the employer too shall make the same contribution to the employee’s EPF account. However, an employee can make higher contribution (VPF – voluntary provident fund) but the employer’s contribution shall remain the same. The amount accumulated in the EPF account earns interest on an annual basis. An employee would receive universal account number (UAN) upon registration and this is transferrable at all times. EPF is a risk free and protected scheme which secures employee’s retirement.

PF Withdrawal Rules 2018

When can EPF be withdrawn? One needs to stay away from the temptation of early EPF withdrawal in order to enjoy the full benefits at retirement. One can withdraw EPF partially or completely as per requirements. Complete withdrawal can be made in the following circumstances;

At the time of retirement

if unemployed for more than 2 months: requires certification from a gazetted officer

Migrating to foreign countries permanently/temporarily upon getting PR or job : Need to produce VISA and other immigration related documents

Partial withdrawal can be made at various life events which are mentioned below;

For the purpose of marriage, children and siblings: Up to 50% of the employee’s contribution and should be in service for at least 7 years.

Up to 50% of the employee’s contribution and should be in service for at least 7 years. For the purpose of education of self, children and siblings : Up to 50% of the employee’s contribution and should be in service for at least 7 years.

: Up to 50% of the employee’s contribution and should be in service for at least 7 years. For the purpose of purchasing land: 24 times the monthly salary and should be in service for at least 5 years, the property purchased should be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property must be produced.

24 times the monthly salary and should be in service for at least 5 years, the property purchased should be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property must be produced. For the purpose of purchasing a residential property : 36 times the monthly salary and should be in service for at least 5 years, the property purchased should be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property must be produced.

: 36 times the monthly salary and should be in service for at least 5 years, the property purchased should be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property must be produced. For the purpose of reconstruction/renovation of a residential property: Up to 12 times of the monthly salary, the property must be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property should be produced.

Up to 12 times of the monthly salary, the property must be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property should be produced. For the purpose of home loan repayment: Up to 90% of the accumulated amount and should be in service for at least 10 years, the property purchased should be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property must be produced.

Up to 90% of the accumulated amount and should be in service for at least 10 years, the property purchased should be registered in the employee’s name (completely or partially owned). A copy of the legal documents of the property must be produced. A little before retirement: One can withdraw up to 90% of the accumulated amount (with interest) after the age of 57.

How to apply for EPF withdrawal? Previously, employee was required to get employer’s approval for EPF withdrawal. Getting an approval from the employer was difficult for many employees and hence EPFO circumvented the need for it. Withdrawal can be done in two ways; application through physical submission and online submission .

Application by physical submission: You need to follow the below mentioned steps for physical submission of the application;

Download the new EPF withdrawal form with Aadhar or without Aadhar from https://www.epfindia.gov.in/site_en/index.php

The composite claim form with Aadhar does not need the employer’s approval. This is to be filled and submitted to the regional EPFO office. You need to attach the requisite documents without which the application will not be processed.

The composite form without Aadhar needs employer’s approval for submission to the regional EPFO office. You need to attach the required documents without which the application will not be processed.

Application by online submission: For online submission, you need to have your UAN, KYC (Aadhar and PAN), bank account details and the phone number linked with the UAN. You need to follow the below mentioned steps for online submission of application;

Log on to https://unifiedportal-mem.epfindia.gov.in/memberinterface/ , login with your UAN and password.

Click on ‘manage’ tab, it will display your information

Verify your details (Aadhar/PAN and bank account details)

Open online services, choose ‘claim form’ from the drop down menu

Claim form would display employee details, KYC and bank details, verify and click on ‘proceed’

After clicking on proceed, you will be asked under which circumstances you are applying, choose the suitable circumstance and submit.

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