Employee Provident Fund (EPF)

Employees’ Provident Fund is a statutory benefit payable to employees working in India for their financial security. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“Act”) is applicable pan-India. The administration and management of Employees’ Provident Fund (EPF) is carried out by the Employees’ Provident Fund Organization (EPFO) and is designed to provide employees with a safety net for their retirement years. This article will take you through the applicability of EPF Rules on any organisation, it’s contribution rates and benefits to the employees.

What is the Employee Provident Fund (EPF)?

The EPF is a government-backed savings scheme that mandates both employees and employers to contribute a portion of the employee’s salary each month towards a retirement fund. Interest earned on the amount deposited is credited to the member’s Provident Fund Account (PF account). The interest rate for EPF members for the Financial Year 2023–2024 stands at 8.25%. The EPF is designed to help employees accumulate a substantial corpus during their working years, which they can access upon retirement or under specific circumstances.

Types of schemes under the Act

Employees’ Provident Fund Scheme, 1952: Employees’ Provident Fund Scheme was set up under the Act for the purpose of providing a post retirement benefit for the employees or a class of employees or their legal heirs in case of death, employed under an establishment to which this Act applies.

Employees’ Pension Scheme, 1995: Employees’ Pension Scheme was framed under the Act for the purpose of providing the superannuation pension, retiring pension or permanent total disablement pension to the employees of any establishment or class of establishments to whom this Act applies.

Employees’ Deposit-linked Insurance Scheme, 1976: Employees’ Deposit-linked Insurance Scheme (EDLI Scheme) was framed under the Act for the purpose of providing insurance benefits to the employees of an establishment or a class of establishments to whom this Act applies in case of death while in service.

Applicability

The Employees’ Provident Fund (EPF) Act and EPF Scheme have a significant impact on organizations and their employees, particularly with regards to the pf applicability number of employees. The EPF Act is applicable to every establishment which employees 20 (twenty) or more persons and every such employer shall be required to be registered under the EPF on the government website ‘Employee Provident Fund Organisation (EPFO)’.

Contributions

Employee Contribution: An employee is required to contribute 12% of their basic salary plus dearness allowance (DA) to the Employees’ Provident Fund.
Employer Contribution: The employer also contributes 12% of the employee’s basic salary plus DA. However, not all of this goes into the EPF. The employer’s total contribution is allocated as 8.33 % to the Employees’ Pension Scheme and 3.67 % to the Employees’ Provident Fund. In addition to the 12% contribution, an employer is also liable to pay 0.5% towards Employees’ Deposit-linked Insurance Scheme (EDLI) and 0.5% as Administration Charges.

Employee Contribution		Employer Contribution
EPF A/c		EPF A/c	EPS A/c	EDLI A/c	Admin A/c
12%		3.67%	8.33%	0.50%	0.50%

Social Benefits of EPF

1. Retirement Security: EPF provides financial security to employees after retirement, helping them maintain their standard of living without the worry of income.
2. Long Term Savings: The EPF encourages long-term savings, ensuring that employees have a significant corpus at the end of their working life.
3. Risk-Free Investment: EPF is a government-backed scheme, making it a risk-free investment option with assured returns.
4. Loan Facility: EPF allows employees to avail loans against their EPF balance for specific purposes like housing, marriage, or medical emergencies, often at favorable interest rates.

Tax Benefits of EPF

1. Contributions:

Employee contributions to the EPF are eligible for a tax deduction under Section 80C of the Income Tax Act, up to a limit of ₹1.5 lakh per annum.

Interest:

As per new amendments in Finance Act, Interest earned on EPF is taxable from FY 2021-22. The act introduced new tax exemption limits for government and private sector employees.

For government employees where there is no employer contribution, individuals can contribute up to ₹ 5 lakh without being taxes. , Interest earned on EPF beyond ₹ 5 lakh is taxable from FY 2021-22.

Other than government employees taxable are those whose contributions exceed Rs. 2.5 lakh, and no tax is levied on contributions below the threshold.

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