Feb 6, 2012

EPF & EPS: Facts you should know about

I’ve already covered PPF extensively, but hardly wrote anything about EPF (Employees’ Provident Fund) & EPS (Employees’ Pension Scheme) assuming people are well aware of its working…but the reality is otherwise…I’ve come across scores of people who hardly know anything about EPF working although making regular contributions through their employers.

So this post is an attempt to shed some light on the little known aspects of EPF & EPS:


Photo by Rainbirder



Provident Fund & Pension Contributions:

Q-1: What is EPF? What is EPS?
A: EPF (Employees’ Provident Fund Scheme 1952) and EPS (Employees’ Pension Scheme 1995) are the two different retirement saving schemes under Employees’ Provident Fund and Misc Provisions Act, 1952 meant for salaried employees. (Note: Government & Semi-Government Employees are covered under Provident Funds Act, 1925 which is not being covered in this post)

Q-2: Is it mandatory for every employee to make contribution towards EPF & EPS?
A: Yes, it is mandatory. However, employees drawing a basic pay of more than Rs. 6,500 have option to
opt out of the scheme.

Q-3: What is the total amount of contribution made to EPF and EPS?
A: Usually, both the employer and employee contribute @ 12% of the basic pay (plus DA if any). The entire 12% of employee’s contribution is towards EPF and out of employer’s contribution @ 12%, 8.33% gets diverted to the EPS and the balance 3.67% goes in EPF.

There is also a subsidy of 1.16% contributed by the central govt. to the EPS. So the total contribution which goes towards EPS is 9.49% of your basic pay.

However, where your basic pay exceeds Rs. 6,500, the contribution towards EPS gets restricted to 8.33% of Rs. 6,500 (i.e., Rs. 541) and the balance of employer’s contribution goes into EPF.

Q-4: Can I voluntary contribute more than the statutory limit to EPF?
A: Yes, you can contribute additional amount (over and above 12%) to Provident Fund by depositing VPF (Voluntary Provident Fund). However, employer is not bound to do a matching contribution.

Q-5: What is the rate of interest applicable on EPF & EPS?
A: EPF rate which was 8.5% since 2005-06 got increased to 9.5 per cent for the FY 2010-11...interest rate for 2011-12 is yet to be declared...might get reduced to 8.6%.

EPS being a pension scheme, interest is not applicable.

Q-6: What is the tax benefit available on EPF & EPS?
A: The employer contribution is exempt from tax and your own contribution is taxable but eligible for deduction under section 80C of Income tax Act.

Q-7: Whether premature withdrawals allowed?
A: Yes, the EPF scheme allows partial withdrawals for the purpose of marriage/illness/higher education/house construction etc.

Q-8: Is it also possible to check the EPF Account balance online?
A: Yes, indeed. The service has been launched in 2011…just spare 2 minutes and follow these steps:

-visit the link: http://www.epfindia.com/MembBal.html

-Follow these instructions: Click on the link mentioned therein; select the EPFO Office where your account is maintained; enter your PF Account number, name and mobile number and you’re done!

-Within a minute, you’ll receive a SMS.


Pension Benefits:

Q-9: When can an employee start receiving a Pension?
A: A employee can start receiving the pension under EPS only after rendering a minimum service of 10 years and attaining the age of 58/50 years.

However, no pension is payable before the age of 50 years and early pension after 50 years but before the age of 58 years is subject to discounting factor @ 4% (w.e.f. 26.09.2008) for every year falling short of 58 years.

In case of death / disablement, the above restrictions doesn’t apply.

Q-10: How long the pension is available?
A: Lifelong pension is available to the member and upon his death members of the family are entitled for the pension.

Q-11: What is the formula for calculating the monthly pension?
A: Under Employees’ Pension Scheme, the monthly retiring pension is decided on the basis of ‘Pensionable Service’ and ‘Pensionable Salary’ and is worked out as follows

Monthly pension=( Pensionable salary*Pensionable service)/70

Pensionable Salary is arrived at by considering the average contributing salary immediately preceding 12 months from the date of exit from the scheme …normally this would be limited to Rs 6,500 p.m. unless certain enhanced contributions are made by the employer with permission.

Pensionable Service is the service in years rendered by the member for which contributions have been received…maximum cannot exceed 35 years

Q-12: What is the maximum amount of Pension available under EPS?
A: Based on a maximum employment period of 35 years, the maximum amount of pension as per the Pension formula would be Rs 3,250 per month.

Q-13: Is it possible to commute pension fully or partly under EPS?
A: Earlier there was a provision under EPS allowing commuting of one third of monthly pension by paying 100 times the original monthly pension. However, the amended scheme w.e.f 26 Sep’ 2008 doesn’t allow it anymore.


Employees Deposit Linked Insurance Scheme (EDLI)

Q-14: Is there any other benefit under Employees’ Provident Fund and Misc Provisions Act?
A: Yes, PF Act also includes EDLI scheme under which life insurance cover is provided to the PF members. The cost of the scheme is borne by the employer but as the amount of life coverage under this statutory scheme is very low (a maximum amount of Rs. 60,000), usually employers opt out of the EDLI scheme by going for group insurance scheme which usually provides higher coverage to employees without any increase in cost to the employer.


Withdrawal of PF & Pension

Q-15: Is it mandatory to transfer EPF Account at the time of change of Job? What happens to EPS? Can one withdraw the entire amount?
A: Yes, legally it is mandatory to transfer EPF Account at the time of job change. But, people generally don’t do it; instead of transferring, they withdraw the amount.

In case of EPS, if the service period is less than 10 years, you’ve option to either withdraw your corpus or get it transferred by obtaining a ‘Scheme Certificate’. Once, the service period crosses 10 years, the withdrawal option ceases.

Q-16: Are there in any tax implications, if I withdraw the EPF balance at the time of a Job change?
A: See, Ten Common Income tax Fallacies

Q-17: How do I know the status of my withdrawal application?
A: Visit: http://www.epfindia.com/ClaimStatus_New.html ; select the EPFO Office where your account was maintained and furnish your PF Account number.


In next part, EPF Provisions applicable to International Workers will be discussed. Meanwhile, if there’s anything I missed out, you can write in the comment section.


Also see:

1. PPF: 10 Practical Tips
2. Tax Saving Options under Section 80C
3. Section 80C: 10 Smart Tips
4. Section 80C: Conditions & Restrictions

13 comments:

  1. Regular reader of your blog for sometime now. That's a very useful one.
    Few questions.
    1. I have recently applied for my PF withdrawal after working for around 7-8 years, having changed multiple jobs in this period but transferring the PF every time to newest employer. So, i assume, i don't have to pay any tax on the withdrawal as it's more than 5 years old, right ?

    2. I had lost hope on the 541/- EPS part, assuming it to be gone for good. Now after reading your post and seeing my application status i think i have a chance of getting it as form 10C has been filled by me for withdrawal. Any idea if i will be able to get 100% of it ? Will i get any interest on this part as well or just the principal amount ?

    Regards
    Raja

    ReplyDelete
  2. Very useful one. Thank you very much for providing such a detailed information.
    one question:
    I have recently applied for EPF withdrawl. In Form 10C, 'Are you willing to accept scheme certificate in lieu of withdrawl benefits' for this i selected 'No' option (as told by my former employer). What does this mean?? --Keshav

    ReplyDelete
  3. Raja,

    Yes, you don’t have to pay any income tax on the PF withdrawals.

    Yes, you will get return of your contribution as per ‘Table D’; if 7 years you will get 7.13 times (in case of 8 years, 8.22 times) of your last drawn salary, subject to a ceiling of 6,500/-.

    Interest is not applicable in case of EPS.

    ReplyDelete
  4. Keshav,

    Selecting ‘No’ option means that instead of a ‘scheme certificate’, you have opted for the withdrawal of your pension contributions.

    ReplyDelete
  5. Your article was a great help in understanding EPF have referred your article in my own post Withdrawal or Transfer of Employee Provident Fund

    ReplyDelete
  6. You said- after changing job, ETF must be transferred but people usually withdraw the amount.
    I want to know that is it so easy to withdraw PF?

    ReplyDelete
  7. I have switched to a new company and I have opted for the PF transfer. It got transferred but EPS is not yet processed. How long it will take usually to get it transferred. Is there any option to check the balance and status of the EPS online.

    Thanks for sharing some wonderful and useful information

    ReplyDelete
  8. Hi,
    This is really giving clear idea of both EPF and EPS and all related doubts. Thank you very much for sharing this information.

    Prasad Shripad Tarade

    ReplyDelete
  9. The information about EPF & EPS is worth reading and keep a copy of it for referrence.

    I would thank the author
    Francis

    ReplyDelete
  10. Hi, i would like to know whether EPFO make payment for EPF and EPS separately. I have applied for withdrawal and i got two claim id one for form 19 and other for form 10c . I have received my PF balance for claim id related to form 19... but have got a message which states then 10c payment has been approved. and is under process. i have a doubt that since both are two things is payment are also made separately.

    ReplyDelete
    Replies
    1. Hi. I too have doubt on that. I have received my PF balance for claim id related to form 19 but for form 10c ,i got message that it has been received and is under process. Have u got the full amount?

      Delete
  11. hello,I resigned from a company from kolkata in 2004.I claimed my EPF and I got my refund against form 19 withdrawal form.Now when I contacted my consultant he adviced me to claim EPS under for 10C.I would like to know weather I am eligible since I had put in seven years of service

    ReplyDelete
  12. Hi even i have not received full amount? I have received only Pf that to in month of Jan 2014, still not have received Pension. Pls rpy

    ReplyDelete

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