Employee Provident Fund India

Overall Rating: star ratingstar ratingstar ratingstar ratingstar rating[5/5]Total Votes [ 13 ]  
Rate this page:
As per the Employees' Provident Fund Scheme 1952 an employee is defined as any individual who is performing a manual or any other operation in lieu of wages. This definition is provided in the Section 2(f) of the said fund.

An employee could also be a person who is connected to the activities of an organization and is paid either directly or indirectly for his or her efforts by the employer. A professional who is recruited via a contractor can also be regarded as an employee of a company.

An excluded employee is one who has collected the entire amount that was accumulated in the fund and would have been paid to him after he reached the age of 55. The term can also be used to denote employees who earn more than 500 rupees per month and can become a part of the fund.

About the Employees Provident Fund

The day the Employees' Provident Fund Scheme 1952 comes into effect in an organization, all its workers including the casual, daily wage workers, contracted laborers, and the part timers, will be part of the scheme.

Concept of Basic Wages- what is it?

The term basic wages signifies all the remuneration an employee earns while they are working or are on holiday. The calculations are primarily done on the basis of the terms of the contract signed by the employer and the employee and the cash transactions are only taken into account.

However, the cash value of food concessions is not included while contributing the EPF. Similarly, dearness allowance and presents given by the employers are not part of these calculations.

The term 'pay' is used to signify the basic wages combined with retaining allowance, dearness allowance, and the cash worth of food concessions.

About Employee Provident Fund Scheme

The Employee's Provident Fund Scheme 1952 deals with the following requirements of its members :
  • Retirement
  • Family obligation
  • Medical care
  • Education of children

How Employee Provident Fund Scheme works?

According to the amendment to the Employees' Provident Fund Scheme 1952, done on September 22, 1997, the employees and the employers both contribute to the fund at 12 percent from the basic wage, retaining allowance, and dearness allowance. The rate though, comes down to 10 percent in case of the following companies or organizations:
  • Covered establishments that have less than 20 workers. This benefit is provided only to companies that were covered prior to September 22, 1997.
  • A company that has incurred losses that are either equal to or more than its total net worth.
  • A sick industrial organization as stated in the clause (O) of Sub-Section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. The company also needs to have been certified as sick by the Board for Industrial and Financial Reconstruction in order to receive the benefit.
  • Companies that manufacture jute, coir, breed and guar gum industries.

Interest Rates in Employee Provident Fund Scheme

The interest rates of the Employee Provident Fund scheme are decided by the Union Government after discussion with the Central Board of trustees and the Employees' Provident Fund itself. The rates are normally fixed during March and April.

The interest is transferred to the account of the members on the basis of running balance for every month. This is done from the final day of every financial year.

Benefits of Employee Provident Fund Scheme

The members of the EPF can take out the full amount that has been credited to their account when they retire after becoming 55 years old. However, the total amount can also be collected under these circumstances:
  • If their services have been terminated before they reached the age of 55 years.
  • If they migrate permanently or take jobs outside India.
  • If they are totally and permanently disabled for mental or physical problems.
  • If there is individual or mass retrenchment.
In case of the following instances the provident fund is paid two months after the withdrawal application is put in by a member:
  • If an employee of a covered organization is transferred to an organization that is not part of the Employees' Provident Fund Scheme 1952.
  • If a member is relieved of his duties and provided retrenchment compensation as per the Industrial Dispute Act, 1947.

When can one withdraw his/her EPF amount?

A member of the fund can take out a maximum of 90 percent of the amount credited to their respective accounts. This can be done after the member is 54 years old or if he or she is a year away from her retirement on superannuation. The later date is taken into consideration in this regard. For withdrawals the applicant needs to submit the Form 19 in the respective Provident Fund office.

What happens to Employee Provident Fund (EPF) in case of death?

Upon the death of a member the entire amount is provided to either their legal heirs or nominees. The Form 20 needs to be provided to the concerned PF office for the purpose.

The nominations are done through the Form 2 whereby the member names the person who will receive the total amount credited to his/her account upon death. Through the form the members provide details of the families which can be used later on by the Provident Fund office for building up its data bank.

Last Updated on: June 12, 2015

>> More About India Tax