Investment is one of the key ways to save money and have some form of financial security in the future. The most common investment methods are an investment in property, putting money in stocks, mutual funds, etc. One such investment option for employed individuals is the Employee Provident Fund (EPF) which provides financial soundness, especially after retirement or in case of a financial emergency.
Working individuals have the option to keep a part of their salary invested in EPF, which is transferred directly by the employer in the PF accounts of the employee. The contribution by employer and employee are maintained by the Employees Provident Fund Organisation (EPFO) which is controlled by the Ministry of Labour and Employment. The employment laws related to the provident fund are laid down under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952.
EPF is contributed on a monthly basis from the employee’s salary to their Universal Account Number (UAN) which has a unique PF account number. This unique number is attributed to a person and not an employer, so the person can change multiple jobs without transferring their PF from one account to another.
Each month, the employer transfers 12% of an employee’s salary in their provident fund account. A maximum of 8.33% or Rs. 1250 is allocated to the provident fund and the balance is transferred to the Pension Scheme. An interest of 8.65% p.a. is given on the PF contribution. Also, the employer contribution to EPF is tax-free and deductible under Section 80C of the Income Tax Act, 1961. A person is entitled to the pension if they have worked for at least 9.5 years throughout their life.
Is PF applicable to all businesses?
The provident fund laws in India are only applicable to the following businesses:
- Any business named under the Industry List or notified in the Gazette by the government.
- A business where 20 or more employees are working.
- A cinema house where at least 5 people are employed.
- A business that voluntarily gets registered under Section 1(4) with the Regional Provident Fund Office.
- A business that has already registered under the Act, but the number of employees has fallen below 20.
An employer who fails to comply with the provisions of the PF Act or fails to furnish any payment would be liable to be punished with imprisonment for up to 1 year, fine of Rs. 5000, or both.
An employee can nominate a person who will be handed over the money at the time of the employee’s death. A nominee can be assigned by submitting Form-2 with the EPFO. An employee whose basic salary combined with a dearness allowance is more than Rs. 15,000 can opt-out of the employee provident fund scheme. However, an employee cannot opt-out of the scheme once they have chosen to create a PF account.
Can a person withdraw money from the PF account anytime?
No, an employee can withdraw money from their PF account only in certain circumstances, which are as follows:
- If a person is unemployed for more than 2 months, then they can withdraw 100% of their PF balance.
- With 10% TDS with a PAN card and 34.608% TDS without a PAN card if the employee withdraws the PF balance before completion of 5 years of services and the settlement amount is more than or equal to Rs. 30,000. TDS is exempted only in the following conditions:
- When PF balance is transferred from one account to another.
- When employment is terminated because of employee’s ill health, discontinuation of business, project completion or other reasons beyond the control of PF member.
- If the PF balance is withdrawn after completion of 5 years of services.
- If the PF amount is less than Rs. 30,000.
- If the employee submits a Form 15G or 15H with their PAN.
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