Employees Provident Fund (EPF) Provisions :
The Employees' Provident Fund (EPF) is a retirement savings scheme for salaried employees in India, managed by the EPFO under the Ministry of Labour and Employment. Both employers and employees contribute to this fund.
Key Provisions
- Contribution : Generally, both employer and employee contribute 12% of basic salary plus dearness allowance. The employee's full 12% goes to their EPF account, while the employer's 12% is split, with 3.67% to EPF and 8.33% to the Employee Pension Scheme (EPS).
- Interest : EPF offers tax-free interest, set annually by EPFO (8.25% for FY 2024-25). Interest is calculated monthly but credited annually, while the EPS component does not earn interest.
- Withdrawal : Full withdrawal is possible upon retirement (age 58) or after two months of unemployment. Partial withdrawals are permitted for specific needs like medical issues, education, marriage, and housing, with a new option allowing up to 90% for housing after 3 years of membership. Withdrawals before 5 years of service are usually taxable unless exemptions apply.
- Transfer : EPF accounts can be transferred when changing jobs, with automatic transfers facilitated since April 1, 2024.
- Tax Benefits : Employee contributions are tax-deductible under Section 80C. Interest is generally tax-free, but interest on employee contributions above a certain threshold (Rs. 2.5 lakhs or Rs. 5 lakhs depending on employer contribution) is taxable.
Recent Changes :
EPFO has improved claim settlements, raised the auto-claim limit for advances to Rs. 5 lakhs and is developing instant withdrawal options via UPI and ATMs. They are also enhancing digital services for claims, profile updates, and KYC verification.
Managing Provident Fund (PF) compliance :
In India, PF (Provident Fund) compliance is a critical legal and ethical responsibility for employers. Adhering to the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, ensures employee financial security and safeguards the business from potential legal and financial repercussions.
Registration and applicability :
Employers with 20 or more employees are legally required to register with the EPFO (Employees' Provident Fund Organisation) within one month of reaching this threshold.
Even if the employee count drops below 20 after registration, the obligation to comply continues.
Voluntary registration is an option for organizations with fewer than 20 employees who wish to offer the benefit.
Contributions and deadlines :
Employers must deduct 12% of the employee's basic salary plus dearness allowance (DA) as the employee's contribution and match it with their own contribution.The employer's contribution is further split: 8.33% to the Employees' Pension Scheme (EPS) and 3.67% to the EPF.
Contributions, along with administrative charges, must be deposited by the 15th of the following month. Late payments incur a 12% annual interest, penalty and potential damages ranging from 5% to 100% of the unpaid amount.
Filing returns :
Employers must generate and submit the Electronic Challan cum Return (ECR) monthly via the EPFO online portal after depositing contributions.
Accuracy in employee details (name, UAN, salary, contributions) and adherence to the prescribed format are crucial and annual returns (Form 3A and 6A) also need to be filed by April 30 of every year.
Maintaining employee records and KYC :
Accurate and up-to-date employee records, including Aadhaar, PAN, UAN, and bank details, are essential for compliance.Ensuring timely KYC verification of employees' UANs is mandatory.Nomination details for EPS and EDLI (Employee Deposit Linked Insurance) beneficiaries should be validated and updated regularly.
Audit and inspection preparedness :
The EPFO conducts periodic audits and inspections to ensure compliance.Maintaining meticulous records of wages, attendance, contribution sheets, and employee declarations is vital.Organizing records chronologically and by employee simplifies retrieval during audits.Retaining documentation for at least five years, or as required by local regulations, is a best practice.
Contractual employees :
The EPF Act applies to all employees, including contractual and temporary staff.Principal employers are responsible for ensuring that contractors are registered with the EPFO and remit PF payments regularly for their employees. This can be verified through the EPFO portal or by insisting on payment receipts.