Provident Fund is government-managed retirement savings scheme for employees. Employee contribute a part of their salary each month towards the pension fund and an employer should make a contribution on behalf of the employees. These monthly savings get accumulated every month, and can be accessed as a lump sum amount at the time of retirement, or end of employment. Every setup with more than twenty employees has to offer PF to its employees.
How Does a Provident Fund Function?
A salaried employee will have a monthly payment with several deductions. The deduction is for the provident fund, which is clearly stated on an employee’s salary slip. According to the EPF rules, 12% of the salary must go towards the provident fund. The company is also supposed contribute 12%, out of which 8.33% of the salary is directed towards the Employee Pension Scheme or EPS. The remaining 3.67% are put into your EPF. The collected funds from all the employees are pooled together and invested by a trust. The pooled funds also generate interest at a rate anywhere between 8% – 12% as decided by the government.
This amount keeps increasing due to monthly contributions as well the yearly compound interest applicable. The EPF remains active till you decide to withdraw it after your retirement.
Types of Provident Fund
Employees provident fund is classified into four types, namely, Statutory Provident Fund, Recognized Provident Fund, Unrecognized Provident Fund and Public Provident Fund.
Statutory Provident Fund (SPF / GPF)
This type PF maintained by Government, Semi Government bodies, Railways, Universities, Local Authorities and others. The contributions made by the employer are free from income taxes in the year in which contributions are made. The contributions made by the employee can be claimed as tax deductions under section 80c. Interest amount credited during the financial year is not treated as income and hence it is free from income tax. The retrieval amount at the time of retirement is free from tax. If an employee terminates the PF account, the withdrawal amount too is free from taxes.
Recognized Provident Fund (RPF)
The Recognized Provident Fund is the one which applies to all privately-owned organizations that have more than twenty employees. The organization can either join the Govt. scheme set up by the PF Commissioner or the employer himself can manage the scheme by creating a PF Trust. All Recognized Provident Fund Schemes must be approved by The Commissioner of Income Tax (CIT). Employer’s contribution in excess of 12% of salary is treated as income of the employee and is taxable. In excess of 12%, the contributions are taxable in the year of contribution. Tax Deduction u/s. 80C is available for amount invested by the employee. Interest amount earned on PF balance is tax free. In excess of 9.5%, the interest on contributions is taxable as ‘salary’ in the year in which it is accrued. Accumulated funds redeemed by the employee at the time of retirement / resignation are exempt from tax if he/she continues the service for 5 years or more.
Unrecognized Provident Fund (UPF)
These are not recognized by Commissioner of Income Tax. Employer’s contribution is not treated as income in the year of investment and hence not taxable in that specific year. So, it is tax free in the year of contribution. Tax deduction under section 80c is not available on Employees contributions. Interest earned is not treated as income in the year it is credited and hence not taxable in the year of accrual. At the time of retirement, the employer’s contributions and interest thereon is treated as ‘salary income’ and chargeable to tax. However, employee’s contribution is not chargeable to tax. Interest on Employees contribution will be charged under income from other sources.
Public Provident Fund (PPF)
Under PPF any individual from public, whether is in employment or not may contribute to this fund. The minimum contribution is Rs. 500 p.a. & maximum is Rs 1.5 Lakh Rs. p.a. The amount is repayable after 15 years. PPF can serve as a very good retirement planning, for those who do not come under any pension scheme. The PPF offers tax benefit under section 8OC and the interest earned is also free from tax. All the eligible withdrawals are free from taxes.
Benefits of Provident Fund(PF)
The EPF scheme provides specific interest rates on the deposits at certain rates which will already be decided by the organization. The Indian government deems both the actual deposited amount and the amount of interest received on the deposits to be completely tax-free. Any sort of withdrawal made at post completion of five years or maturity of having availed the certain scheme is completely tax-free.
Long-Term Financial Security
Funds that are deposited in this kind of account cannot be easily withdrawn by the person, and therefore, it helps to ensure savings.
Resignation/Quitting the Job
The employee can withdraw 75% of the EPF after resignation after a month of the date he/she quit the job. The remaining 25% can be taken two months after being unemployed.
The employee can use the accumulated fund in case of any type of emergency. The employee can decide to withdraw the fund prematurely. The scheme allows for such premature withdrawal in special specific cases.
There might be some cases where the employee loses the job they currently have because of any reason. During these times, the funds can be used to meet that person’s expenses.
In case the employee passed away, the collected amount including the interest is given to the nominee of the employee.
The fund that is accumulated under the scheme can be used by the employee at the time of his retirement. In the form of monetary security, this scheme will help the employee that is retired.
Accessible All Over
When you have the Universal Account Number (UAN), the employees will be able to access their PF account easily via the EPF member portal. This way they will be able to transfer their accounts every time they want to shift their current jobs.
Occasions like wedding, education for children, self, or sibling, you can withdraw up to 50% contributions from your account. The member can withdraw up to three times. To access these benefits, the member must have served for at least a time period of seven years. The members should also have the proper documents for the events. Members can choose from their account for maintenance of a house, house repair, or for the repayment of loans you might have taken to get the house.
How to activate UAN number?
- Visit the EPFO portal.
- Select ‘Our Services’ and click on ‘For Employees’.
- Click on ‘Member UAN/Online Services’.
- Click on ‘Activate your UAN’ (situated under ‘Important Links’ on the right-hand side).
- Enter the details like UAN, date of birth, contact number and click on ‘Get authorization pin’.
- Enter the OTP received on your phone and click on ‘I Agree’.
- Click on ‘Validate OTP and activate UAN’.
How to check Provident Fund (PF) balance?
You can check your PF balance through any of these services – Umang App, EPFO portal, SMS or a missed call.
EPF balance through the EPFO portal
Use the new EPFO portal to view your PF passbook. You can also print the passbook. Visit www.epfindia.gov.in, go to ‘Our services’ and select ‘For employees’. Click on ‘Services’ and select the ‘Member passbook’ option. Enter your UAN and password to view your passbook.
EPF balance through SMS
If you have registered your UAN with EPFO (Employee Provident Fund Organization), you can check your PF balance easily by sending an SMS. Send a text message to 7738299899. The text message should include ‘EPFOHO UAN ENG’. UAN will be your personal UAN and ENG is the first three letters of your language preference. Supported languages include English, Bengali, Gujarati, Hindi, Kannada, Malayalam, Punjabi, Tamil, and Telugu.
EPF balance through the Umang application
The government has launched the Umang app in order to make it convenient to check the PF balance. With this app, you can view your passbook, raise a claim, and track the claim. Register by entering OTP that is sent to your mobile number.
EPF balance through a missed call
If you have registered and activated your mobile number on the UAN portal, and you have completed KYC for your UAN, you can check your balance by giving a missed call to the toll-free number 011-22901406. The call automatically disconnects after two rings. You will then receive details with regards to the balance and the last contribution made to the PF account in the form of a text message.