Provident FundProvident Fund
What is EPFO?
In this comprehensive guide, we'll delve into all you need to know about EPFO, including its origins, structure, benefits, and navigating its processes. Established in 1952 under the Employees' Provident Funds and Miscellaneous Provisions Act, EPFO operates under the Indian Government's Ministry of Labour and Employment with the primary goal of providing financial security and stability to its members after their retirement.
1. Who is an International Worker (IW) as per the EPF Act?
An International Worker (IW) is any employee who is a foreign national working in India under an employer registered with the EPFO or an Indian employee who is working in a foreign country with which India has a Social Security Agreement (SSA).
2. What is a Social Security Agreement (SSA)?
A Social Security Agreement is a bilateral instrument to protect the social security interests of workers posted in another country. Being a reciprocal arrangement, it generally provides for equality of treatment and avoidance of double coverage.
3. Are Indian employees deputed abroad exempted from contributing towards the Social Security Scheme of that foreign country?
Indian employees who are deputed abroad are exempted from contributing towards the Social Security Scheme of that foreign country, if:
- India has an SSA with that foreign country; and
- If the IW obtains a Certificate of Coverage (COC) from the EPFO.
4. If Indian employees are deputed to a foreign country that does not have an SSA with India, would they then be obliged to contribute towards EPF?
Yes, in the absence of an SSA with that foreign country, the Indian employee is required to contribute towards PF in India as well as that of the foreign country.
5. If the employee does not obtain COC from EPFO is it mandatory for them to contribute towards EPF?
Yes, if an Indian employee does not obtain a COC from the EPFO then he/she is required to make contributions towards PF in India as well as that of the foreign country.
6. Are the foreign nationals exempted from making contributions towards PF?
Foreign nationals who are contributing towards the Social Security Scheme in their home country (country of origin), are exempted from making contributions towards the PF in India, provided that the following conditions are satisfied:
- India has an SSA with that foreign country; and
- The IW has submitted the Detachment Certificate issued by the Social Security Office of his/her country of origin.
7. Who is a ‘Detached Worker’
A foreign national, contributing to the Social Security Program of the foreign country as per the Social Security Agreement signed between that country and India and exempt from making any contribution towards the Provident Fund in India for the period and terms as set out in such an agreement is a ‘Detached Worker’ for the purpose of compliance in Host Country (EPFO).
8. In case an IW completes his/her assignment and returns to India, will he/she continue to be considered an IW?
No. Such employees will reacquire the status of an Indian employee upon repatriation to India after completion of their overseas assignment. Upon reacquiring the status of an Indian employee, they must contribute towards the EPF according to the provisions of the Act
9. For an IW, what is the cap on salary up to which the contribution is made by the employer and the employee to the PF and EPS?
There is no cap on the salary. Contribution towards the EPF and EPS is payable on gross wages
10. How long can an Indian employee retain the status of “International Worker”?
An Indian employee attains the status of “International Worker” only on account of employment in a country with which India has signed an SSA. He/she shall hold that status till the time he/she avails the benefits under a Social Security Program covered under that SSA.
- What are the contributions payable by the employer and employee?
The contributions payable by the employer and the employee under the scheme are 12% of PF wages. From the employer’s share of contribution, 8.33% is contributed towards the Employees’ Pension Scheme and the remaining 3.67% is contributed to the EPF Scheme. Employer’s contribution towards Employees’ Deposit-linked Insurance Scheme is 0.50% and the administrative charges are 0.50%.
2. Can an employee opt out from the Schemes under EPF Act?
An employee with a basic salary of over Rs. 15,000 and who has never been a member of EPF can opt out of the scheme. But once they become a member, they cannot opt out of the scheme.
3. What if an employee while joining an establishment has a basic salary below Rs. 15,000 and after some period of time his/her PF wages increases above Rs. 15,000, does he/she have an option to opt out of his/her membership from the provisions of the EPF Act?
If an employee’s salary at the time of joining is less than Rs. 15,000 and it later gets increased to over Rs. 15,000, while still being in service, they are added to the members list for the provident fund mandatorily. They do not have the option to opt out of the scheme once enrolled.
4. Is EPF deducted on stipend?
A trainee or an intern is not an employee by the definition of the Act and the schemes defined under the Act. EPF is not deducted from the stipend earned by a trainee or an intern subject to the condition that such trainees are covered under either the Apprenticeship Act or Industrial Employment (standing orders) Act or the interns are engaged through recognized institutions undergoing on-job training as part of their curriculum.
5. Can an employer restrict his share of contribution to the wage ceiling limit of Rs. 15,000?
An employer is under no obligation to contribute over and above the PF wage celling limit. The employer may, however, voluntarily contribute on higher wages
6. In case an employee leaves an establishment where this Act applies and joins an organization where this Act doesn’t apply, what will happens to his/her accumulated funds?
In such a case the accumulated amount shall be transferred to the employee’s fund, or as the case may be, in the Provident Fund of the establishment left by him/her, within such time as may be specified by the Central Government.
7. Can an employer deduct the employer’s contribution towards EPF from the wages of employees?
No, an employer cannot deduct the employer’s contribution towards EPF from the wages of employees. According to Section 14(1A) of the Act any such deduction is a criminal offence and shall be punishable with imprisonment for a term which may extend to three years but shall not be less than one year and fine of Rs. 10,000.
8. Can a member pay contribution beyond the wage ceiling limit?
Yes, the member can contribute beyond the wage ceiling limit of Rs. 15,000. The total contribution i.e., voluntary + mandatory can be up to Rs. 15,000 per month. The member can also contribute on higher wages i.e., greater than Rs. 15,000 but only up to a maximum limit of 100% of the PF wages, provided they get permission from the APFC/RPFC as per the provisions of para-26(6) of the scheme. The employer may restrict his/her own share to the statutory rate.
9. What are the components to be considered for the purpose of PF contribution from the wages?
After the latest Supreme Court Judgement on Surya Roshni case, dated 28th February 2019, the contribution shall be calculated on the basis of monthly pay containing the following components actually drawn during the whole month whether paid on a daily, weekly, fortnightly or monthly basis:
- Basic wages
- Dearness Allowances
- Retaining Allowances
- Conveyance Allowances
- Other Allowance
- Special Allowance
- Leave Travel Allowances
- Fixed cash Allowance (Management allowance, educational Allowance, Medical Allowance, Telephone, Food Allowance etc.)
- Petrol Reimbursement (without bills and without supporting documentation/data to substantiate the reimbursement is for official purposes)
- City Compensatory Allowance or any other allowance paid as fixed component, uniformly and universally having no direct nexus to the outcome of an employee’s normal work.
10. Which are the excluded components for the computation of EPF?
These components are excluded while calculating the EPF:
- HRA allowance (House rent allowance)
- Attendance allowance
- Night shift allowance
- Washing allowance
- Relocation allowance
- Overtime allowance
- Canteen allowance
- Various Incentives provided for particular employee
- Bonus or Commissions payable to a particular Employee
11. Can an employee become the member of the Pension Scheme without contributing towards the EPF?
No. An employee can become the member of the Employees’ Pension Scheme only by virtue of the EPF membership.
- Is EPF transfer or withdrawal taxable?
Under the existing Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 guidelines, any income received through a withdrawal of the Employee Provident Fund shall be deemed taxable if such a withdrawal is made by the employee before five years of continuous service.
Exemptions are provided in case the termination of employment occurs due to ill health or closure of business. Income tax is however not applicable on the accumulated EPF balance transferred to a new employer as it is a continuation of the account.
2. Is there a minimum number of years that must be rendered for partial withdrawals in case of medical treatment?
There is no minimum requirement of service years rendered in case of withdrawal to avail medical treatment. The same can be availed at any time but it must be availed for self or family only. Hospitalization must be for more than one month, for a major surgery or illness or on the account of a physical handicap. A person can withdraw 6 months PF wages or the employees’ contribution, whichever is lesser.
3. Can a person withdraw the EPF amount one year before retirement?
Yes. If the employee has attained the age of 54 years or above, he/she can withdraw up to 90% of the PF balance with interest, one year before retirement
4. What should be the next course of action after moving from one job to another? Also, what should a person do if they do not take up another employment after they quit a job?
An employee should transfer the provident fund balance from his/her old employer to his/her current employer when he/she switches jobs. The balance accumulated from the previous employer will remain as it is, while the new employer will start making new contributions starting from the date of commencement of the new job. But in instances where an employee quits employment, and does not take up any other employment, he/she can withdraw the provident fund balance. For this to happen the employee must declare that they have no intention of working in the next six months.
5. What are the interest rates on the EPF amount?
The interest rates that EPF account members enjoy, vary from year to year. This always depends on the revenues generated by the Employee Provident Fund Organization in the previous year. Currently, as on 2018, the interest rate is 8.65%.
6. What are tax benefits available for the member employee under the Scheme?
According to the Income Tax Act there is a tax deduction applicable which enables total tax-free returns for the employees.
- Tax on PF withdrawal for an amount > Rs. 50,000 before 5 years of opening the EPF account, with PAN TDS is 10% and without PAN TDS is 34.6%.
- PF withdrawal for an amount > Rs. 50,000 after 5 years of opening EPF account will not attract tax.
- PF withdrawal for an amount < Rs. 50,000 anytime during the service does not attract tax.
- In case an employee is terminated or unemployed as a result of ill-health etc., withdrawals will not attract tax.
7. What is UAN?
Universal Account Number (UAN) is a 12-digit number allotted by the EPFO to each of its members to manage their PF accounts. It acts as an umbrella for members to assemble all their PF accounts associated with multiple ids (Member Identification Numbers) in one place. UAN has made it easy for employees to monitor, withdraw and transfer their PF funds. When an employee changes jobs, they need to provide their UAN to the new employer to link the new PF account. Since the UAN provides direct online access to the employees, an employer cannot deduct or hold back their PF.
8. How can a member access his/her details through the portal?
Members need to visit the UAN based Member Portal website i.e. https://uanmembers.epfoservices.in/ Initially, member will have to activate his/her UAN by selecting a link given ‘Activate your UAN’ on the UAN Member Portal. Member should have UAN, Mobile and Member ID readily available to activate his/her UAN on the UAN Member Portal. For further details, please select the hyperlink ‘User Manual for Members’.