The EPF Act was formed in 1952 by the EPFO. The Employees Provident Fund Organisation is for the betterment of the employees. The EPF act, also known as the Employees Provident Fund & Miscellaneous Provisions Act, has various sections. Before knowing about schedule 1 of EPF Act, it is essential to know the meaning of EPF. There are various reasons as to why it came into action. The EPF scheme is a savings scheme that is for the employees. Through this scheme, the employee would be able to save money. This money that the employee saves will be helpful during the time of retirement. There are specific rules and regulations in this scheme, which we would discuss below.
The EPFO also governs the pension scheme. The EPFO solely controls the EPF scheme. It deducts the appropriate amount from the employee’s monthly salary and keeps it in the EPF account. Not only the employee but also the employer contributes to the EPF account. With this, the company ensures that the future of the employee is secure. The EPFO even gives interest on the amount, which is beneficial for the employee.
What Is The Schedule 1 Of EPF Act?
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Schedule 1 of the EPF Act is the summary of the whole act. In this schedule, the EPFO has started the various parts of the act, the eligibility criteria, and many more. In short, Schedule 1 of the EPF Act is a summary of the whole act. A person can understand the gist of the EPF act by reading Schedule 1.
It consists of the exceptions, the basic rules, and other miscellaneous information. A person can find detailed information about the whole act by reading the whole act.
Where Is The EPF Act Applicable?
Though the EPF Act is for the employees, there are certain conditions. Not all organizations are eligible to opt for the EPF Act.
Below are the organizations which are eligible to register under the EPF Act:
- An organization that has more than 20 employees has to register under the EPF Act.
- Any factory of organization which Schedule 1 mentions and in which 20 or more employees are working
- Any company which the Government mentions, even if it has less than 20 employees.
Other than this, no other organization is eligible to register under the EPF Act. As mentioned, any organization less than 20 employees are not eligible for the scheme. But, if it registers itself in the Act, then the scheme applies to the company. The EPF Act has various things, which we will discuss in different parts.
Moreover, an employee whose monthly salary is less than INR 15,000 has to register under the EPF Act. This rule is mandatory for such employees. If an employee who has more than INR 15,000 as his/her monthly salary wishes to register under the EPF Act, he/she can do so. But, for doing this, the employee has to take the consent of the employer. It is important to take the employer’s consent as even the employer has to contribute towards the EPF account.
Types Of Provident Fund
There are 4 types of provident fund. Each of these provident funds has its specific facilities—each provident fund is discussed in the below sections.
i. Statutory Provident Fund Or SPF
It is also known as the Government Provident fund. The SPF was made under the Provident Fund Act, 1925. This provident fund is only for employees who work under government establishments. This fund is also for employees in semi-government companies or educational institutes.
ii. Public Provident Fund Or PPF
The PPF is the type of fund which anyone can avail to. The Public Provident Fund is under the Public Provident Fund Act, 1968. Anyone, whether he/she is employed or not, can register under this Act. This scheme is for people who are self-employed and do not have any means of retirement scheme. The smallest amount that you have to invest in this fund is INR 500 per month. The total amount in the PPF is repayable after 15 years.
You can even extend the period and gain more interest in it. The present interest rate on PPF money is 8%. This scheme is useful for daily workers who get daily wages and do not have a secure future during old age. With the help of PPF, they can save money and even get interested in it. The government did this Act for self-employed and daily workers.
iii. Recognized Provident Fund Or RPF
The RPF scheme is under the Employee’s Provident Funds & Miscellaneous Act, 1952. As per this Act, any company or organization with more than 20 employees has to register under the EPF Act. The government has made this rule mandatory so that the employees can have a secure future. Moreover, if an organization wants to register under the RPF even if they do not have 20 employees, they can do so.
iv. Unrecognized Provident Fund Or URPF
The URPF is a scheme in which the employees and employer start in an organization. If the commissioner of Income Tax approves this scheme, then it applies to the company.
Contribution In The EPF
As per the EPF Act, both employee and the employer has to contribute towards the EPF Account. But how much amount does each party has to contribute? The EPFO has stated a contribution rate, which the employees and employer have to pay.
The contribution rate is 12% for both employee and employer. It means that every month, the EPFO will deduct 12% from both employee and employer’s salary. While the employee’s 12% directly goes into his/her EPF account, the same is not for the employer’s contribution.
From 12% of the employer’s contribution, only 3.67% goes into the EPF account. What happens to the remaining amount? The remaining 8.33% of the employer’s contribution goes to the EPS or employee’s pension scheme. The pension scheme stores the amount of the employer. The employee receives this amount after retirement. The employee is only eligible for the pension scheme if he/she has worked for more than 10 years in the company.
For companies that have less than 20 employees, the contribution rate is only 10%. In simple language, both employer and employee only have to contribute 10% of their EPF Account salary. The government has also reduced the contribution rate for women employees to 8%.
But, if an employee wishes to contribute more towards the EPF Account, he/she can do so. But, the employer is not bound to make a higher contribution. This type of contribution is known as Voluntary contribution and is free from taxes.
Taxes On EPF Account
Talking about taxes, there are certain rules about taxes on the EPF Act. As per the EPF Act, if the employee has worked for 5 years or more than that, the EPF account is free from taxes. It means that if an employee has worked in a company for 5 years, his/her EPF account will be free from any taxes. Such an employee does not have to pay any taxes in the EPF amount during withdrawal.
We know that people change companies, and, in such cases, how can a person have 5 years of continuous service? An employee can have 5 years of service by shifting the EPF account from the old company to the new company. By doing so, the EOFO will consider that the person has worked for 5 years, and the account will be free from taxes.
If a person is withdrawing money from the EPF account before 5 years, then he/she will have to pay taxes. The tax applies to the amount in the EPF account. The employee will pay the tax rate for withdrawing money before 5 years. Thus, it is highly suggested that one should only withdraw money from EPF if it is an emergency.
How To Apply For EPF?
If you want to apply for the EPF, you need to take your employer’s consent for the process. Earlier, an employee had to fill out a form and then submit it to the employer for approval. After the approval, the form is then submitted to the EPFO. After the process is over, you would have your own EPF account. But, with the change in time, the process has also changed a bit.
Instead of manually filling out a form, an employee can apply for the EPF through the online process. The EPFO portal service is user friendly, and you can easily apply for EPF through the portal. Even for the employer’s signature, the portal would send a message to the employer. The employer would then send a digital signature. Once the process is over, the employer would have his/her own EPF Account. It not only saves time and energy but even prevents from making any mistakes.
An employer with 20 or more employees has to register for the EPF, as stated by the EPFO. He/she can easily do so through the online portal of EPFO. But, if you have less than 20 employees and want to register for the EPF act, you can do that too. You have to submit the details of your organization. After submission, there will be verification. After the verification is over, the organization gets registered under EPF.
There are certain rules for withdrawing money from the EPF. People know that EPF is a savings scheme that is made to encourage people to save money. An employee can only withdraw money from the EPF at the age of 58. The EPFO made this rule so that employees do not withdraw money before retirement. It would help the employees in knowing the value of saving money.
But, there are certain rules and exceptions for the withdrawal section too. An employee can withdraw 75% of the EPF money at the age of 54. The remaining 25% of the money will remain in the account. The employee will only get the 25% amount at the time of retirement. This exception is present only for emergencies. Another rule states that the employee can withdraw 90% of the EPF money at 57. This rule is only applicable if he/she has not withdrawn money at the age of 54.
Besides that, an employee, who is currently unemployed, can withdraw 75% of the EPF amount after a month. After 2 months, the person can withdraw the remaining 25% of the money. This rule is applicable even for people who left the company for starting their own business.
It is well known that emergencies can occur at any time. An employee needs to have financial support during such times. The EPFO has made certain exceptions in the Act for emergencies. In these exceptions, even if the employee has not reached the age of 54, he/she can withdraw money. The exceptions include medical needs, construction of a house, wedding, and many more. The eligibility criteria for each of these exceptions is different. But, one thing is for sure, that a person can withdraw money from an EPF account at a time of dire need.
What Are The Benefits Of EPF?
There are various benefits that a person can get from the EPF Act. Some of the major benefits are below.
- PDF helps an employee is having a secure life after retirement
- It serves as an emergency backup during the time of emergencies.
- The EPF provides high-interest rates on the amount.
- It prevents any premature withdrawals.
- Both employer and employee contributions towards the account
The EPF act encourages the employees to practice saving money. The government took this step to know the importance of saving money and benefit from it.
What Are The Disadvantages Of EPF?
Though the EPF has tons of benefits, it even has some disadvantages in it. It is well known that EPF is a debt-based investment or savings scheme. There is no kind of equity in such schemes, which means a person can get negative returns if the inflation is high. Hence, an employee needs to think before registering in the EPF Act as it can lead to negative returns. In such cases, the employee needs to think about ways to help him/her gain a high corpus from the EPF account.
1. When can I withdraw money from my EPF account?
You can withdraw money from your EPF account at the age of 58. But, you can withdraw 75% of the EPF amount at the age of 54 too.
2. How can I transfer my EPF account from the old company to a new company?
You can transfer your EPF account from the old company to a new company by contacting your new employer. You have to fill out a form, after which the old EPF account will transfer to your new company.
3. What if I withdraw money from the EPF account before 5 years of service due to an emergency?
If you are withdrawing money before 5 years of service, the amount is taxable. If it is for an emergency, then an employee does not have to pay any taxes.
4. Can a company that is less than 3 years in the market register for EPF act?
No, less than 3 years in the market cannot register under the EPF Act.
EPF savings scheme is one of the best savings schemes provided by the government. This particular Act has helped tons of employees. It has helped the employees in having a secure retirement. Due to the EPF Act, people got to know about saving money and receiving various benefits. Moreover, the EPF act even provides nice interest rates.
Due to high-interest rates, the employee gets a lump amount of money at the time of retirement. In addition to that, if the employee has worked for more than 10 years in the company, then he/she even gets the benefits of the EPS of the employee pension scheme. The government took such steps to benefit the employees, and it has served its purpose rightly.