Provident Fund (EPF/EPS) In India

Provident Fund is not a new word for employees in India. Since its very beginning the PF Act has seen a lot of amendments but seems quite stable in recent years.

For all those who are unaware of the said benefit, PF is a compensation benefit for employees in India. A certain amount is deducted from the Employee's salary which is then clubbed with certain amount added by the Employer and then the total sum is transferred to the Provident Fund which is governed by the Indian Government. Lets understand this in detail:

An Employee gets his salary in a break-up consisting of Basic Salary + Dearness Allowance + Other Allowances. According to the law the employer has to deposit a total of 24% of Employee's (Basic Salary + Dearness Allowance) into the Bank Account of Provident Fund.

Where does this 24% come from?

12% is contributed by the Employer and the other 12% is deducted from the Employee's Salary.

Where does this contribution go?

This contribution is deposited into Bank Account of PF, through Challans. Every organization is required to maintain a copy of it, wherever applicable.

How does the Money Flow then?

EPF takes the Employer's contribution + 3.67% of Employee's Contribution or the difference amount from EPS if Employees Basic Salary is Rs.6500/- or more.

EPS takes 8.33% of Employee's contribution. But if the Basic Salary of the Employee is Rs.6500/- or more then a flat amount Rs.541/- is taken by EPS and the balance amount is added to EPF.

What is EPF? What is EPS?

EPF stands for Employee Provident Fund. This is the fund where all the contributions will be stored in the employee's name and PF account number. The Employee gets an annual interest of 8.75% on the total accumulation, which is added back to the total accumulation.

Employees have an option to withdraw the balance, take loan against the available balance or transfer the PF account if they switch jobs.

In some organizations employees are also availed the facility of Voluntary Contribution to EPF. This means that Employees, on their own discretion, can ask the employer to deduct an additional amount of their choice over and above the minimum 12%.

Every year the employees are issued a PF slip where in they can see their PF accumulation/balance and interest earned on the same during the year. A PF slip shows 4 main components which the employee must understand.

• The opening balance: Basically the closing balance of the previous year.
• Contribution: Sum total of the total contribution (12% employer's + 3.67% of Employee's Contribution or the difference amount from EPS if Employees Basic Salary is Rs.6500/- or more) made every month for 12 months.
• Interest: is the Interest earned on the balance (currently 8.58%)
• Closing Balance: Opening Balance+Contribution+Interest

EPS stands for Employee Pension Scheme. The employees, if satisfy a few requirements, are eligible for Pension facility from their lifetime contribution in Employee Pension Scheme. As for now there are no options available to the employee for voluntarily raising the contribution to EPS, but there are chances in future.

There are various other important points of provident Fund in India. For details you may visit their official website: http://www.epfindia.com

Disclaimer: This Hub is intended to provide just an overview of Provident Fund in India and any information provided here should not be taken as exhaustive. The information available here may change from time to time with respect to amendments in the PF Act by the Government of Republic Of India. For accurate and detailed information please visit the official website of PF in India or use the RTI (Right to Information Act) facility here or locate and visit your nearest PF Office.