Bytes - Your weekly dose of
investments, taxes, finance & more.
Bytes - Your weekly dose of
investments, taxes, finance & more.
Making Managing Money Smarter & Taxes Less Taxing
New Video Every Friday
Blog
New ITR Forms out
for AY 2020-21
Here's what changed
97% Customer Retention
95% CSAT
10x Annual Growth
Hiral Vakil
2019-03-02 06:24:38Employee Provident Fund (EPF) is nothing but a savings scheme for employees. Every month a portion of your salary is deducted towards EPF. This fund can be availed when you are unable to work or when you retire. This scheme was introduced by the Government of India in order to inculcate the habit of savings within salaried individuals. EPF is monitored by EPFO (Employees Provident Fund Organisation) and it comes directly under the jurisdiction of the Government. This article will help you get a clear idea on various aspects of EPF.
Employee’s Contribution to PF: 12% of your Basic Salary + DA (Comes out of your Salary).
The Employee Contribution goes entirely towards the EPF Scheme.
Employer’s Contribution to PF: 12% of your Basic Salary + DA (Comes out of your Employer’s Pocket).
The Employer Contribution gets split up as follows:
Let us take an example to understand these calculations better:
Note: The current per annum rate of interest is 8.5% hence, the monthly rate of interest will come to 0.708% (8.5/12)%
Ms Amrita works at a start-up and earns a monthly salary of INR 20,000. Ms Amrita’s contribution of 12% is directly transferred to her Employee Provident Fund Account, in this case, INR 2,400. The contribution of Amrita’s employer will be divided into two parts: 3.67% towards EPF account, INR 734 (20,000*3.76%) and 8.33% towards EPS, INR 1,666 (20,000*8.33%)
So now the total contribution towards Ms Amrita’s EPF account is INR 3,134 (2,400 + 734)
The monthly interest accrued will be INR 22.18 (INR 3,134*0.708%)
One has to note that the interest earned in a month is credited to the account only by the end of the year.
Employee’s contributions to EPF was tax-deductible under section 80C, while the employer’s contribution is completely tax-free. However, as per the recent announcement in Budget 2021, interest earned on annual PF contribution exceeding INR 2.5 lakhs from April 2021 will now be taxable. Any withdrawal after the specified period (5 years) is exempt from income tax.
An interest rate is determined by the government and central board of trustees. Any interest earned towards credit standing in one’s PF account is deposited on 1st April of every year. Historically PF has earned interest between 8% to 12%. For FY 2019-20 interest rate is 8.5%. Interest accumulated during employment is taxfree.
An EPF Form is very important and mandatory if an employee wants to carry out any activity in their EPF Account. These forms are used for processes like a nomination, to avail tax deduction, account transfer, avail monthly pension etc.
Below-mentioned is the list of forms serving different purpose:
| Form | Purpose of the Form |
| Form 2 | For Nomination and Declaration |
| Form 5 | For Registration |
| Form 5IF | To avail a claim under EDLI Scheme |
| Form 10C | To avail withdrawal benefits or scheme certification |
| Form 10D | To avail monthly pension |
| Form 11 | To transfer EPF account |
| Form 14 | To purchase LIC policy |
| Form 15G | To avail tax-saving benefits on interest |
| Form 19 | For settling EPF |
| Form 20 | For settling EPF in case of death |
| Form 31 | For EPF Withdrawal |
| Investments | Returns | Lock-In-Period | Risk |
| ELSS | 12-15%* | 3 Years | Market Risk |
| FD | 7-9 %* | 5 Years | Risk-Free |
| NSC | 8% | 5 Years | Risk-Free |
| NPS | 8-10%* | Till Retirement | Market Risk |
| PPF | 8% | 15 Years | Risk-Free |
All the above tax savings investment options are tax-deductible upto INR 1,50,000. (*Subject to change)
No, it isn’t possible to continue contributing to EPF once he/she has left the service. EPF mandates that an employer contributes the same amount as the employee. But since an Individual has left service, he/she cannot be deemed an employee.
In case your PF account is lost due to a defaulted employer, these are the ways in which you could recover it:
– Attachment of Bank Accounts
– Realization of dues from Debtors
– Attachment & Sale of properties
– Arrest and Detention of the Employer
– Action under Section 406/409 of Indian Penal Code
– Section 110 of the Criminal Procedure Code
– Prosecution under section 14 of the EPF & MP Act,1952
The Annual P.F. Statement of Account/Member Passbook will indicate the amount paid by the employer. The default period in a year is thus made known to the members. In the current scenario if the member has activated her/his UAN the non-payment/payment of contributions can be verified every month through the e-passbook. Currently, members also receive SMS on their registered mobile phones on credit of monthly contribution into their PF account.
The process to convert to VPF account is very simple. All one needs to do is inform the employer regarding opening a VPF account and mention the amount that he/she will be contributing to the account.
Hey @sushil_verma
There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.
For eg,
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.