Introduction

Employees’ Provident Fund is a statutory benefit extended to employees employed in India. The laws relating to Employees’ Provident funds within India are governed by The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

The Central Board of Trustees constituted by the Central Government administers the Employees’ Provident Fund – its members include representatives from the government, employers, and employees.

EPFO is the abbreviation for Employees’ Provident Fund Organization, which serves as a supporting arm for the Central Board of Trustees to carry out its functions in turn and hence smoothly operate the EPF.

What is the Employee’s Provident Fund?

In India, the Employee’s Provident Fund is a welfare scheme created for securing an employee’s future. It is a statutorily obligated benefit extended to employees at the time of retirement or at the time of termination of services.

In the case of an EPF Scheme, it is a contributory Scheme where employees in service and their employers are required to make contributions towards the Fund. The interest accrued on the amount is credited to the Provident Fund Account of the member.

The employee and employer contribute a certain amount every month, as long as the employee is in service, continuing this scheme. It is availed of for tax benefits and usually carries a higher rate of interest when compared with other savings schemes.

In case of meeting their specified conditions, they are able to withdraw the money when they retire or leave their respective services. In case of death of the employee, his/her dependants can access this facility.

The interest rates for PF are re-declared every year. In the case of the financial year 2024-25, it is staying afloat at 8.25%. The earning announcement on the interest rate of the ongoing financial year by the EPFO is, within a financial year, followed by the final declaration at the end of the year, where it uses the monthly closing balance, which actually plays a vital role in growing your account and further calculating it for the entire year.

Key Points to be kept in mind regarding the EPF Interest Rate:

The interest rate currently in operation is 8.25% and is applicable on the deposits in the EPF account.

Though the calculation of interest is done on a monthly basis, crediting of interest to employees’ PF accounts is done only once in a year, i.e., on 31st March every year, which becomes a very important date as far as your financial planning goes.

1. The interest earned during this period gets added to your existing balance in order to compound in the following month, which is April of every year. You will then get this amount added to the balance on which the interest for that particular month would be computed.
2. Accounts that are not credited with EPF contributions for 36 months continuously become inoperative.
3. Interest accrual on inoperative accounts will be credited to the accounts of employees who have not attained retirement age.
4. Interest will not accrue on the inoperative account if an employee has retired.
5. Accrued interest on inoperative accounts is liable to income tax at the income tax slab rate prevailing for the member.
6. There is no interest charge on the contributions made within the Employees’ Pension Scheme. After attaining 58 years of age, an amount is payable as pension from it.

Eligibility Criteria for EPF in India

The EPF comes under Provident Fund Schemes. The eligibility criteria of the EPF scheme are mentioned below:

1. All the salaried employees who have a monthly income of Rs 15,000 or below are necessarily covered under an EPF account.
2. Organizations having more than 20 employees must get registration for the EPF scheme.
3. Employees drawing more than Rs 15,000 have a flexible registration in the EPF scheme. Not only this, with approval by the Assistant PF Commissioner, Employees can get registration for an account in EPF, which would allow access to them for financial transactions determined by their own needs and desires.
4. Organizations that have a maximum of twenty employees, can also participate in the EPF scheme on a voluntarily basis.
5. Applications of the EPF scheme are also applicable in all the states in India.
6. Upon the employees becoming active members of the EPF programme because of the recruitment, then they are subject to the benefits accorded to them, such as provided insurance and pension, under the employee provident fund, with the aim of giving them a sense of being secured and valued.

Working of the EPF

1. Your salary gets EPF deduction
2. Well, anybody who is working and getting a salary is well aware of the deductions that are being made in the salary they get every month. One of the such deductions is made towards provident fund and is tracked in your paycheck.
3. As per the rules of EPF, 12% of your salary is credited to your provident fund account. It is also compulsorily required on your employer’s part to pay an equal 12% contribution, out of which 8.33% of the total contribution is credited towards the Employee Pension Scheme.
4. The remaining 3.67% is credited to your EPF account.
5. Your contributions combined with that of other employees are deposited altogether in a trust. The gathered funds also earn interest between 8 to 12% as announced by the government.
6. The total amount continues to grow. It is due to your periodic or monthly deposits and the compound interest applicable yearly. The EPF continues until you choose for it at the time of your retirement.

Withdrawal of Employee Provident Fund

There are two major ways through which one can withdraw their provident fund.

You can withdraw after attaining the retirement age, which is 58 years and above. At this age, a withdrawal can be made through your employer from the Employee Provident Fund.

The other way is that your EPF is drawn before attaining your retirement age. This can be achieved when one has been unemployed for a month hence being able to withdraw 75% of your provident fund. Note that the employer’s contribution in the provident fund is only accessible after one attains 58 years.

Frequently Asked Questions

Does the Income from EPF attract Tax?

No, the annual interest income and the lump-sum income received after 5 years are tax-free.

What is the rate of interest on EPF for FY 2023-24?

The rate of interest applied on EPF Deposits is 8.25%.

Who clears EPF interest rates?

EPF interest rates are cleared by the Ministry of Finance.

What is the retirement age required to avail the EPF Fund?

EPF can be withdrawn only after the attainment of 58 years of age.

When is an EPF Account declared dormant or inactive EPF Account?

If no contributions are made for 36 months or 3 years, then the EPF account is declared to be inoperative.

Is the EPF income applicable to tax, after it’s withdrawn?

No, after withdrawal of the EPF amount, the income generated is exempt from income-tax in India.

Provide the link for Employees’ Provident Funds India website.

‘https://www.epfindia.gov.in/site_en/index.php’ is the link for the EPF website of India.

Ready to invest like a pro? The Unicorn Signals app equips you with 100+ Free tools and knowledge you need to succeed. Download the Unicorn Signals app and gain access to daily stock lists, insightful market analysis and, much more!