EPF or Employee Provident Fund is a fund in which a portion of your salary gets deposited every month, for the purpose of building your retirement savings.
EPF balance is the total amount of your salary that is deposited in the EPF account, under your name, on a particular date.
In this article, we will talk about the Employee Provident Fund and cover the important aspects of the concept that you must know.
1. More About EPF
Ever wondered why the total CTC on paper and your in-hand salary are different. One of the reasons for your in-hand income being lower than your mentioned CTC is EPF deduction from salary. But what exactly is this EPF?
Simply put, the Employee’s Provident Fund (EPF) is a retirement benefits scheme, which is available to all salaried employees.
Each month a fraction of your salary is deposited into this retirement savings fund. The purpose is to create a corpus that can be put to use in case you are no longer able to work, or to help you sustain post-retirement. Every company with over 20 employees is required by law to register with the EPFO.
It is hence, important that such a huge fund, comprising of the hard-earned money of so many employees, is managed safely and systematically. To ensure credibility and safeguard investment risks, the EPF fund is managed by the Employees Provident Fund Organisation of India (EPFO).
2. How Much EPF is Deducted From Your Salary
The amount in your EPF balance will be determined on the basis of what percentage of your salary is deducted each month. Under the Provident Fund scheme, the employer, as well as the employee, contribute 12% of the employee’s basic salary (plus dearness allowances, if any) into the employee’s EPF account.
Full 12% of the employee’s contribution goes into his/her EPF account. Additionally, 3.67% (out of 12%) from the employer’s contribution also goes into your EPF.
The remaining 8.33% of your employer’s contribution is credited to your EPS (Employee’s Pension Scheme). It is important to note that EPS is different from EPF.
Currently, the annual interest rate on your EPF balance, as per the official EPF India website, is 8.75%
3. Interest On EPF Balance
The balance in the EPF account is relevant to determine the interest accrued to the EPF account.
The interest is calculated on the accumulated balance in the EPF account on the 1st of April every year. Interest is calculated at a rate of 8.75% per annum.
All employees must note that the EPF deductions take place monthly, however, the interest is calculated yearly.
Now you know why it is important to keep track of your EPF balance at the beginning of each year.
4. The Tax Structure of EPF Balance
The employer contribution to the EPF is tax-free. As far as the employee’s contribution to EPF is concerned, the employee can take the benefit of tax deduction under Section 80C of the Income Tax Act.
Simply put, for the employee, investment in EPF, the interest earned on the EPF balance and the money withdraw, after the mandatory specified period (5 years), all are absolutely tax-free.
How to check the EPF balance?
You can check your EPF balance on the EPF India website.
UAN (Universal Account Number), helps you access your entire EPF balance under one single window. You might have EPF contributions under different EPF numbers (owing to different employers).
However, your cumulative EPF balance can be checked with the help of a single (lifetime) Universal Account Number. It is very easy to check EPF balance, as well as transfer/ withdraw EPF balance.
EPF balance can easily be checked on the EPFO’s member portal. The steps you need to follow for the same are:
- Visit the EPFO’s member portal – http://www.epfindia.com/site_en/KYEPFB.php
- Select the ‘Know your balance’ option which is available at the bottom of the screen
- Subsequently, you will need to select the location of your regional EPF office
- Next, you can enter your PF account number and your mobile number
- That’s it, you’re done, it’s that simple
Alternatively, you can also check your EPF balance via UAN:
- Visit http://uanmembers.epfoservices.in/
- Thereafter, enter your UAN and mobile number
- Subsequently, you are required to select your EPF state and city
- That’s it, next, you will receive an SMS of your EPF balance
EPF is a retirement fund created to encourage the habit of building your savings. The balance in the EPF account is tax-free and also earns interest. In this way, it helps create a corpus for the after-work life of every individual.
And finally, EPF can easily be managed (withdrawn or transferred) with the help of a single UAN number.
Disclaimer: The views expressed in this post are that of the author and not those of Groww