What is EPF? Employees’ Provident Fund

What is EPF? Employees’ Provident Fund

Employees’ Provident Fund Image

After a great hue and cry Government exempted taxing of the employers’ contribution on the

EPF (Employees’ Provident Fund). But the strange surprise is that Government has issued notification on 10th Feb 2016 that an employee is not eligible to take out the contributions of his/her employer till he/she attains 58 years of age.

What is this Scheme? How did it work?

1. Every month, 12% of an employee’s salary is deducted towards contribution to EPF account and the employer also equally contributes the same amount towards the savings. A part of the Employer’s contribution goes towards the Employees’ Pension.

2. Employees’ Provident Fund Organization stipulates the Rate of Interest payable on this balance every year (which is 8.8% today), which is compounded every year. The money accrued in the account is available at 58yerars of age.

3. EPF is permitted to be withdrawn only for some specified purposes.  Partial withdrawal is allowed for Children’s Education, marriage of House Repair etc. Also, the rule permits withdrawal of the entire balance if a person is not employed for over 2 months period. This loop hole was manipulated in different ways by employees who could withdraw the sum at the time of changing their jobs.

4. The EPF was portable with an Universal Account Number (UAN). However, tracking of the EPF members’ employment was an impossible task, since the employees used to get a different employer linked EPF account number every time they changed their  job.

What does the new Rule state?

The UAN has made illegitimate withdrawals difficult.  The new rule has made complete withdrawal unworkable. Complete withdrawal through online is also being made possible by the Government, with further strengthening of UAN.

The new rule states, that if one has completed an unemployment period of 2 months, he/she can withdraw only their contribution of EPF with up-to-date interest.  The employer’s contribution can be withdrawn only on attaining 58 years of age. However this is not applicable in case of  Pregnant Women Employees going on leave or Child birth or women leaving a job on account of her marriage.

The new rule also adds that if an employee leaves a job and joins another organization, and gets a new EPF account number, the balance with the old employer will become dormant after 3 years, and no interest will be paid in that account.  Also, the balance in the account will be allowed to be withdrawn only after a person attains an age of 58 years. There is a dispute regarding classifying such accounts as Dormant or Inoperative, and the clause relating to withdrawal of employees’ contribution is still under review.

Exemption to the Rule:

Following are the explicit cases which are exempted from the rule and the entire amount can be withdrawn:

· Migration to another country.

· Taking up employment abroad.

· Mass or Individual Retrenchment.

Indeed it is considered to be a blow on the personal rights and privileges of the Middle Class individuals.

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