Employee Provident Fund (EPF) is a retirement benefits scheme introduced by the government of India in 1952. The social security scheme aims to provide employees with financial stability after retirement.
The EPF scheme is mandatory for all establishments with 20 or more employees. This page provides detailed information on the importance and benefits of the Employee Provident Fund.
What is an Employee Provident Fund?
Employee Provident Fund (EPF) is a retirement benefits scheme mandatory for all Indian employees earning up to Rs 15,000 per month.
It is a savings scheme in which employees and employers contribute a fixed percentage of their salary to an EPF account. The account earns interest, which the government declares every year.
EPF Eligibility Criteria
The EPF scheme is available to all employees in India who earn less than Rs 15,000 per month. However, it is mandatory for employees earning less than Rs 15,000 per month to contribute to the scheme, while employees earning more than Rs 15,000 per month can do so voluntarily.
EPF Contribution Rates
Under the EPF scheme, the employer and the employee must make contributions. The contribution rate for employees is currently set at 12% of their monthly basic salary, while the employer must contribute 12% of their basic salary and dearness allowance.
EPF Interest Rates
The EPF interest rate is reviewed by the EPF Board every year and is currently set at 8.15% per annum. The interest earned on EPF contributions is tax-free, making it an attractive option for those looking to save for retirement.
Importance of Employee Provident Fund
EPF is an essential social security scheme that ensures employees’ financial security after retirement. Here are some of the reasons why EPF is essential:
Retirement Benefits: The primary objective of the EPF scheme is to provide financial stability to employees after retirement.
The EPF account helps employees save a part of their monthly salary, which they can use after retirement.
Tax Benefits: EPF offers tax benefits to both employees and employers. Employee contributions to the EPF account are eligible for tax deductions under Section 80C of the Income Tax Act. Additionally, the interest earned on the EPF account is tax-free.
Savings Habit: EPF helps employees inculcate a savings habit by mandatorily deducting a part of their salary towards the EPF account. This ensures that employees save a part of their monthly salary, which they can use after retirement.
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How does the EPF work?
Here’s how the EPF works: Contributions: The employer and the employee contribute to the EPF. The employer contributes 12% of the employee’s basic salary, and the employee contributes 12% to the fund. The employee can also choose to contribute more than the mandatory 12%.
Interest: The EPF offers a guaranteed interest rate on the contributions made by both the employee and the employer. The government determines the interest rate each year.
Withdrawal: The employee can withdraw the accumulated balance in the EPF account after retirement or if they’ve been unemployed for over two months.
Sometimes, the employee can withdraw a portion of the balance for specific purposes, such as buying a house or paying medical expenses.
Benefits of Employee Provident Fund
Apart from the retirement benefits, EPF offers several other benefits to employees. Here are some of the benefits of EPF:
- Medical Expenses: EPF offers a provision to withdraw a part of the accumulated corpus for medical expenses of the employee and their family members.
- House Purchase: EPF also offers a provision to withdraw part of the accumulated corpus to purchase a house or plot.
- Loan Facility: EPF also offers a loan facility wherein employees can withdraw a part of their accumulated corpus for personal reasons or education purposes.
- Nomination Facility: EPF offers a nomination facility wherein employees can nominate their family members to receive the accumulated corpus in case of their demise.
EPF Online Services
The EPF scheme has undergone several digital transformations over the years, making it easier for employees to manage their savings. Some of the online services provided by the EPF include:
- UAN Activation: Employees can activate their Universal Account Number (UAN) online, which enables them to access their EPF account information and claim status.
- EPF Balance Check: Employees can check their EPF balance online using their UAN.
- EPF Claim Status: Employees can track the status of their EPF claim online using their UAN.