Easy-PF - Employee Provident Fund

The Employees’ Provident Fund (EPF) Scheme, 1952

The Employee Provident Fund Scheme India was enacted in the year 1952, replacing the Employee Provident Fund Ordinance, 1951. The EPF scheme is now known as the Employees’ Provident Fund and Miscellaneous Act, 1952.

The administration of the Act is carried out by the Central Board of Trustees which comprises representatives of three parties viz. the government, employers and employees. The Board is assisted by the Employees’ Provident Fund Organisation (EPFO) which falls under the purview of the Government through the Ministry of Labour and Employment.

The aim of the EPF scheme is to promote retirement savings for employees across India. The Employees’ Provident Fund (EPF) is a corpus of funds built through regular, monthly, contributions made by an employee and his/her employer. The amount contributed to the fund is based on a fixed rate. Employees earn interest on their EPF balances. Both, the interest earned and the total amount withdrawn at maturity are tax-free, making this one of the most popular forms of long-term retirement savings among the working population in India. Besides retirement, funds accumulated in an employee’s EPF account can also be used at time of resignation or death. It also offers financial security in times of emergency and if an employee is rendered unfit for unemployment.

The EPFO, therefore, services an unusually large number of subscribers. This, coupled with the large number of associated transactions involved, ranks the EPFO among the largest organisations, globally. There are currently more than 5 crore members that the EPFO services. Under the Act, the EPFO operates three schemes in all viz.

• Employees’ Provident Fund Scheme, 1952
• Employees’ Pension Scheme, 1995 (which replaced the Employees’ Family Pension Scheme, 1971)
• Employees’ Deposit Linked Insurance Scheme, 1976

Under the Act, member employees are eligible for provident fund, pension and insurance benefits as per the abovementioned schemes.

Benefits of the EPF Scheme 1952

The EPF scheme is one of the most important savings schemes in India for many reasons. Key advantages are highlighted below.

• Tax-free earnings: The interest earned on funds held in an EPF account is tax-free. Withdrawals at maturity / beyond 5 years are also tax-free (except in case of premature withdrawal). This helps optimise growth and returns on savings. Contributions made towards EPF are tax deductible u/s 80C of the Income Tax Act, 1956.
• Financial Security: Funds in the account are not easy to withdraw and so savings is ensured.
  • Retirement - eventually, the amount collected provides financial security at time of retirement.
  • Emergencies - The funds are also useful in times of emergencies to meet certain requirements for which premature withdrawals are allowed in certain cases
  • Loss of income - If an employee for some reason cannot work any longer, these funds help tide over loss of income.
    • Resignation - after 2 months of resignation employees can withdraw accumulated amounts in their PF accounts
    • Death - the accumulated amount is passed on to the employee’s nominee providing them financial stability.
    • Disability - If employees cannot work any longer, EPF balances can be withdrawn to tide one over.
    • Retrenchment or discharge - This where employees are laid off from work. PF savings can bridge the income gap till another job can be found.
• Long-term savings option: This is a sound savings option for employees with long-term investment goals.
• Source of funds: In times of need, EPF funds can provide an employee much needed liquidity. Funds can be borrowed to meet certain pressing needs such as medical, housing, marriage and education.
• Pension: Under the Act, along with provident funds, an employer also contributes towards an employee’s pension fund which the employee can eventually use upon retirement.
• Insurance: Under the Act, an employer also contributes towards an employee’s life insurance in the absence of a group cover, thereby ensuring employees are insured.
• Universal access: Employees can transfer their accounts when they change employers and with the introduction of the Universal Account Number (UAN) they can now access their EPF accounts through a single-point.