Wednesday, December 26, 2012

10 hidden EPF Rules - Employee Provident Fund for Indian Salaried Class



We will discuss few EPF rules today. We all know what is EPF Employee Provident Fund. A small part of your salary (12% of your basic salary) is invested in something called EPF and an equal amount is matched by your employer each month. This is what 95% people know about EPF. But there are many things in EPF which a lot of people do not know and this article is going to open some not known secrets of EPF. One should be aware about all the EPF related information. So lets take them one by one in points format.

1: You can also nominate someone for your EPF

Do you know that there is also nomination facility in EPF ? The nominee will be contacted at the time of death of the person and handed over the EPF money. However if nomination is not present (which you should check), it can raise to all sort of issues while claiming money. There is a form called *Form 2 http://www.hrindiaonline.com/pdfdocs/forms/pf/form2.pdf>*which
has to be filled to change or update the nomination. Please contact your company finance department or directly send the form to EPFO. One very strange thing about EPF rules is that you cant nominate your brother for EPF.
Not sure why!

2: One can get pension under EPF

Do you know that there are two elements in EPF one is called EPF and other is EPS (You can check your EPF balance using the new EPF e-passbook http://www.jagoinvestor.com/2012/08/epf-passbook-employee-provident-fund-balance-online.html>option)
 The EPF is actually for your provident fund and EPS is for your pension. The 12% contribution from your side goes to EPF, but the 12% contribution which your employer makes, out of that 8.33% actually goes in EPS (subject to maximum of Rs 541) and the rest goes into EPF. So understand it this way, a part of your  employer contribution actually makes up your pension corpus. But there are some caveats to this.

   - One is liable for pension only if one has completed the age of 58.
   - One is liable for pension only if he has completed 10 yrs of service
   (in case of more than one companies, the EPF should have been transferred,   not withdrawn)
   - The maximum Pension per month is subject to maximum of Rs 3,250 per  month.
   - Lifelong pension is available to the member and upon his death members of the family are entitled for the pension.

[image: Description: EPS EPS components]

3: No interest is given on EPS (pension part)

You must be thinking that you regularly get compound interest each year on your contribution + employer contribution. But it does not work like that.
The compound interest is provided only on EPF part. The EPS part (8.33% out of 12% contribution from your employer or Rs 541 what ever is minimum) does not get any interest. At the time of EPF withdrawal , you get both EPF and EPS.

4: You might not get 100% of your EPF money

Imagine your contribution + employer contribution has been total Rs3,50,000 till date. Out of this 3,50,000 , suppose 2,50,000 has gone in EPF , and rest 1,00,000 has gone in EPS (for pension) . Now if you quit your job in 6th year of employment and opt for withdrawal of your EPF money http://www.jagoinvestor.com/forum/how-to-withdrawtransfer-ppf-money-to-new-account/3517/>(EPF+ EPS actually) , then do you think you will get total 3,50,000 ?. NO !

Thats because you always get 100% of your EPF part, but for EPS there is separate rule . There is something called Table http://www.erlaws.com/docs/nat%5CEPF%5CEPFPS/PSTD.htm>, under which its mentioned how much you get at the time of exit from your job, there is a slab for each completed year and you get n times of your last drawn salary (depending on the completed year of service) subject to maximum to Rs 6,500 per month. So if your salary in this case was Rs 30,000 per month, still you will be given only 6,500 * 6.40 = Rs 41,600.

[image: Description: Table D under EPS]

Note that the table D is upto 9 yrs only, because if 10 yrs are crossed, then you are liable for pension.

5: You can invest more in EPF, its called VPF

You can always invest more than 12% of your basic salary in EPF which is called VPF. In this case the excess amount will be invested in EPF and you will keep on getting the interest, but the employer is not supposed to match your contribution. He will just invest upto maximum of 12% of your basic, not more than that.

 
6: Withdrawing of EPF amount at job change is illegal

Almost every one thinks that withdrawing of your EPF amount after a job switch is totally fine and allowed, however as per *EPF Rules*, its illegal. You can only withdraw your Employee provident fund money, only if you have no job at the time of withdrawing EPF and if 2 months have passed.
Only transfer is allowed in case you get a new job and you switch to it.
While there are no cases where EPF office tracks these things and takes up this matter, still just for your information you should know that if you got a new job and took it and then you are applying for withdrawal, its illegal as per law. However in case of EPS, if the service period is less than 10 years, you have option to either withdraw your corpus or get it transferred by obtaining a Scheme Certificate. Once, the service period crosses 10 years, the withdrawal option ceases. Just for your information, you can withdraw your EPF money without the help of past employerhttp://www.jagoinvestor.com/2012/11/withdraw-your-epf-without-employer-signature.html>signature
by attesting your withdrawal form by a bank manager or some gazzeted officer. I hope you are clear about EPF withdrawal rules.

 
7: One can opt out of EPF if he wants

Yes!I know this might be a surprising fact for many , but if ones basic salary per month is more than Rs 6,500, he has an option to opt out of EPF and not be part of it. In which case he will get all his salary in hand (without anything deducted every month). But the sad part is that one has to opt out of EPF in the start of his job. If a person has been part of EPF even once in his life, then he cant opt out of it. So if you have already had EPF in your life. This option is not for you, but if you are new to job and your EPF account number still does not exist, you can tell your employer that you do not want to be part of Employee provident fund  You will have to fill up form 11 for this.

 
8: Your EPF gives you some life insurance too

A lot of people might not know that in case a company is not providing group life insurance cover to its employees, in that case the employee is given a small life cover through EPF. This is because there is something called Employees Deposit Linked Insurance (EDLI) scheme and your organisation has to contribute 0.5% of your monthly basic pay, capped at Rs 6,500, as premium for your life cover. However companies which already have life insurance benefits to employees as part of the company, are exempted from this EDLI scheme. The bad part of this EDLI scheme is that the life cover under this option is very low and thats maximum amount of Rs

No comments:

Post a Comment