EPF (Employee Provident Fund): Calculation, Benefits and Comparison

by Shakshi Bharti | Jun 20, 2024 | Income Tax | 0 comments

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Important Keyword: EPF, EPF Calculation, Tax Saving Investments.

EPF (Employee Provident Fund): Calculation, Benefits and Comparison

The Employee Provident Fund (EPF) is essentially a savings scheme designed for employees. Every month, a part of your salary is deducted towards your EPF account. This fund serves as a financial resource that can be utilized during periods of unemployment or after retirement. Introduced by the Government of India, EPF aims to encourage savings among salaried individuals.

EPF is overseen and managed by the Employees Provident Fund Organisation (EPFO), which operates under the direct jurisdiction of the Government. This ensures that the fund is regulated according to established norms and guidelines.

Employee Provident Fund Applicability

EPF (Employee Provident Fund) is a retirement scheme overseen by the EPFO (Employees Provident Fund Organisation). It is mandatory for organizations or factories with 20 or more employees to register with the EPFO. Entities with fewer than 20 employees can opt for voluntary enrollment. All employees earning wages up to INR 15,000 per month must be enrolled in this scheme.

Individual employees cannot register independently with the EPFO; registration must be done by their employers.

Employee Provident Fund Withdrawal Eligibility includes:

Retirement: Upon reaching 55 years of age, an employee can withdraw the entire EPF amount.
Pre-Retirement: From the age of 54 years, an employee can withdraw up to 90% of the EPF funds, one year before retirement.
Job Change: After one month of unemployment, an employee can withdraw 75% of the EPF amount. The remaining balance is transferred to the new job’s PF account.
Unemployment: After two months of unemployment, an employee can withdraw the entire EPF amount.

How is Employee Provident Fundtaxed?

The taxation of EPF withdrawals varies based on specific circumstances, with exemptions granted under certain conditions. The following table explains EPF taxation in all scenarios:

Scenario	Taxation
Employee contribution to PF	A deduction can be claimed up to INR 1.5 Lakhs under section 80C in a year
Employer contribution to PF	If the employer’s aggregate contribution towards PF, NPS, & Superannuation Fund exceeds INR 7.5 Lakhs in a year then such excess will be taxable as perquisite under Salary. Any interest/ dividend on such excess contribution will also be taxable.
Interest on EPF	If an employee contributes more than INR 2.5 Lakhs in a year then interest on such excess contribution is taxable as other source otherwise it is exempt. TDS is applicable on such interest. This limit will change to INR 5 Lakhs if the employer is not contributing to PF.
EPF is withdrawn after 5 years of continuous service	It is exempt from tax. For calculating 5 years, the tenure with the previous employer will also be considered.
EPF is withdrawn before the completion of 5 years	1. Employer contribution and interest on it is fully taxable as salary. 2. Employee contribution is not taxable, provided it was not claimed under 80C as a deduction, if so then it will be taxable as salary. 3. Interest on employee contribution is taxable as other source. Note: TDS @10% under section 192A will be deducted if the amount withdrawn is more than INR 50,000.
Transfer of PF from one employer to another	Not taxable
EPF is withdrawn from unrecognized PF	It will be taxable irrespective of the period of service

Note: If EPF is withdrawn before the completion of 5 years of continuous service due to the employee’s ill health, discontinuance of business, or reasons beyond the employee’s control then such withdrawal will be exempt from tax.

What is the current EPF Rate of Interest?

An interest rate for the Employee Provident Fund (EPF) is determined annually by the government and the central board of trustees. Interest earned on credits in one’s PF account is credited annually on 1st April. Historically, EPF interest rates have ranged from 8% to 12%. For the financial year 2023-24, the interest rate stands at 8.25%. Importantly, interest accrued on EPF contributions during employment is tax-free.

To calculate interest on EPF:

Employee’s Contribution: Ms. Amrita earns a monthly salary of INR 20,000. Her contribution to EPF is 12% of her Basic Salary + DA, totaling INR 2,400.
Employer’s Contribution: The employer also contributes 12% of Ms. Amrita’s Basic Salary + DA. This amount is split as follows:
- 3.67% (INR 734) goes into Ms. Amrita’s EPF account.
- 8.33% (INR 1,666) goes into the Employee Pension Scheme (EPS).

Therefore, the total monthly contribution towards Ms. Amrita’s EPF account is INR 3,134 (2,400 + 734).

Interest Calculation: The annual interest rate of 8.25% translates to a monthly interest rate of 0.688% (8.25%/12).
- Monthly interest accrued = INR 3,134 * 0.688% = INR 21.56.

It’s important to note that although interest accrues monthly, it is credited to the EPF account only at the end of the financial year, typically on 1st April of the following year. This process ensures that employees benefit from compounded interest on their EPF contributions.

What are the Different EPF Forms?

An EPF Form plays a crucial role and is mandatory for various activities related to an employee’s EPF account. These forms are essential for processes such as nomination, availing tax deductions, transferring accounts, and accessing monthly pension benefits.

Below-mentioned is the list of forms serving different purposes:

Form	Purpose of the Form
Form 2	For Nomination and Declaration
Form 5	For Registration
Form 5IF	To avail of a claim under the EDLI Scheme
Form 10C	To avail of withdrawal benefits or scheme certification
Form 10D	To avail of a monthly pension
Form 11	To transfer the EPF account
Form 14	To purchase an LIC policy
Form 15G	To avail of tax-saving benefits on interest
Form 19	For settling EPF
Form 20	For settling EPF in case of death
Form 31	For EPF Withdrawal

Comparison of Different Tax-Saving Investment Schemes

Investments	Returns	Lock-In-Period	Risk
EPF	8.25%*	No lock-in period	Low Risk
ELSS	10-12%*	3 Years	Market Risk
FD	6-7%*	5 Years	Low Risk
NSC	7-8%	5 Years	Low Risk
NPS	9-12%*	Till Retirement	Market Risk
PPF	7-8%	15 Years	Low Risk