An overview of Provident Fund
The Employees Provident Fund (EPF) is a scheme for Indian employees governed by the Provident Funds as well as Miscellaneous Provisions Act, 1952. It is overseen by the Employees Provident Fund Organization (EPFO).
Establishments with 20 or more employees are required to apply for PF registration in India. Under specific circumstances and exemptions, establishments with fewer than 20 employees may still qualify for PF registration.
Upon retirement or resignation, employees receive a sum comprising both their own and their employer’s contributions, along with accrued interest.
Who is eligible to get EPF registration?
For Employee
Employees earning less than Rs. 15,000 per month are required to become members of the EPF. However, according to the guidelines, employees whose basic pay exceeds Rs. 15,000 per month upon joining are not obligated to contribute to the PF.
Nevertheless, an employee with a monthly pay exceeding Rs. 15,000 can choose to become a member and make contributions, along with the employer, subject to coordination with the Assistant PF Commissioner.
For Employer
PF registration is compulsory for all establishments that:
- Employ 20 or more individuals.
For any other establishment with fewer than 20 employees, the central government must specify this requirement in a notification
The Amount for the PF Contribution
The employer must obtain PF registration within one month of reaching the required employee strength. Failure to comply may result in the imposition of relevant penalties.
Once registered, an establishment remains under the Act’s purview even if the number of employees falls below the required limit.With an equivalent contribution from the employee, employers are required to contribute 12% of the (Basic Salary + Retaining Allowance + Dearness Allowance). If the establishment employs fewer than 20 individuals, both employer and employee contribution rates are limited to 10%. Typically, for employees in the private sector, the contribution is calculated on the basis of basic salary.
The Breakdown of PF Contribution
The 12% contribution is divided into the following subdivisions:
- 67% towards the Employees Provident Fund
- 1% towards EPF administration charges
- 5% towards the employee’s deposit linked insurance
- 01% towards EDLI administration charges
- 33% towards the Employees’ Pension Scheme.
What is the Employees’ Pension Scheme?
8.33% of the employer’s contribution is directed towards the Employees’ Pension Scheme, calculated based on a maximum limit of Rs. 15,000. For instance, if an individual’s basic pay is Rs. 15,000, the amount routed to the Employees’ Pension Scheme would be Rs. 1,250. If the pay is less than Rs. 15,000, 8.33% of that amount will be routed to the Employees’ Pension Scheme, while the remaining balance will be retained in the EPF scheme.Upon superannuation, the employee would receive their full share, while the employer’s share would be credited to the EPF account.
Required Documents for Registration
The employer must attach the following documents with the registration form:
- PAN of the Partner, Proprietor, or Director
- Address proof (such as a recent utility bill not older than 2 months)
- Aadhar card of the Proprietor, Director, or Partner
- Canceled Cheque or Bank Statement
- Digital Signature of the Proprietor, Director, or Partner
- Hired, Rented, or Leased Agreement (if applicable)
EPF Charges
- The contribution amounts are rounded to the nearest rupee for each employee’s share, the contribution towards pension, and the EDLI contribution.
- The employer’s share is the difference between the employee’s share and the pension contribution.
- Monthly payment amounts towards EPF administrative charges are rounded to the nearest rupee, with a minimum of Rs. 500 payables.
- If the establishment has no members in the month, the minimum administrative charge applicable is Rs. 75.
- Monthly payment amounts under EDLI administrative charges are rounded to the nearest rupee, with a minimum of Rs. 200 payables.
- If the establishment has no members in the month, the minimum administrative charge payable is Rs. 25.
- If the establishment is exempt from the PF scheme, inspection charges of 0.18% (minimum Rs. 5) are payable in place of administrative charges.
- If exempt under the EDLI scheme, inspection charges of minimum Rs. 1 @ 0.005% are payable instead of administrative charges.
Due Date for Paying EPF
Before paying salaries to employees, the employer must deduct the employee’s contribution from their wages. Subsequently, both the employee’s portion and the employer’s share should be remitted to the EPFO within 15 days of the close of every month.
EPF stands out for its returns among debt instruments. The funds are backed by the government, and the interest earned is tax-free. PF enjoys EEE (exempt, exempt, exempt) status, as contributions are deductible from income. Few debt instruments offer such high returns with safety and assurance. Therefore, it’s advisable to transfer the PF account when switching jobs and resist the temptation to withdraw the money.
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FAQ’s
Employees earning less than Rs. 15,000 per month are required to join the EPF. However, those earning more can opt in. Employers with 20 or more employees must register, and smaller establishments may be required based on government notification.
The 12% contribution includes portions for the Employees Provident Fund, EPF administration charges, employee’s deposit-linked insurance, EDLI administration charges, and the Employees’ Pension Scheme, ensuring comprehensive benefits for employees.
Contributions must be deducted from employees’ wages before salary payment and remitted to EPFO within 15 days of each month’s end. Timely remittance ensures compliance and smooth management of EPF accounts.
Transferring PF accounts maintains continuity, ensuring accumulated savings and interest remain intact. It’s a prudent financial move, leveraging the safety, assured returns, and tax benefits offered by EPF.
EPF offers a secure savings avenue with attractive returns, backed by the government. The tax-free interest and EEE status make it an ideal long-term investment, ensuring financial stability and retirement security for employees.
EPF administrative charges are rounded to the nearest rupee, with minimum payable amounts specified. Charges vary based on the number of employees and their contributions, ensuring fair and transparent management of the scheme.
Employers need to provide a PAN, address proof, Aadhar card, cancelled cheque, digital signature, and rental agreement (if applicable). These documents streamline the registration process and ensure compliance with EPF regulations.
Failure to register for EPF within the stipulated time frame can lead to penalties. It’s crucial for employers to comply with the registration requirements to avoid legal repercussions and ensure the financial security of their employees.