But some people do not know that an employee can also opt not to get enrolled into EPF, but this is required to be done at the time of joining first ever job. Once enrolled in EPF Scheme, the employees have to continue with it even when they shift jobs.
So, be sure whether or not you want to invest some portion of your salary in EPF while joining the first job.
Constitution of EPF
The constitution of EPF involves the contribution by employee as well as employer. Following are the important points in the constitution of EPF:
- 12% of the salary of the employee is invested in EPF and the same amount is contributed by the employer each month. But the money so invested does not go into EPF account alone. There are two heads where the money is invested, one is EPF and other is EPS (Employee Pension Scheme).
- 12% contribution of the employee completely goes to EPF account but from 12% contribution of employer, 8.33% goes to EPS account and the remaining goes to EPF account.
- There is no interest given on EPS amount. Though both are in same account, the treatment to both the heads are dealt with in different manner. So, a part of employer's contribution forms pension corpus.
Conditions for claiming the amount from EPS:-
The amount deposited in EPS can be claimed under following circumstances:-
- If the employee has attained the age of 58 years.
- If he has completed 10 years of service, however it can be claimed before 10 years also but certain limit is prescribed for it which depends upon the period of service. The amount to be paid under EPS is calculated as per table ‘D' of EPF scheme.
- The maximum limit of pension is Rs.3250 p.m.
- Upon death, the members of the family are entitled for pension.
Withdrawal of EPF
Many investors have a misconception that withdrawal of EPF after a job switch is fine and allowed; but as per EPF rules it is illegal. As per rules:
- One can only withdraw the EPF amount if he doesn't get another job within two months of his retirement from previous job, otherwise he has to transfer the EPF.
- In case of withdrawal of EPF, full amount is not given. Only the amount deposited after parting EPS is fully paid back.
- The amount in EPS is paid subject to applicability of some condition depending upon the period of service. The amount to be paid is calculated as per table ‘D' of EPF scheme.
Partial withdrawal of EPF
EPF can be withdrawn partially before maturity under certain circumstances. Following is the chart which shows different circumstances when EPF can be partially withdrawn with some conditions and limits.
The conditions for Advance/ Withdrawals and amount permissible are as follows :
- For Marriage / Education: 50% of Employee share at the time of tendering the application
- For Treatment: 6 times of Wages or Full of Employee share, whichever is less
- For the construction/ purchase of dwelling unit (house/ flat): Up to 36 times of Wages
- Repayment of housing loan: Up to36 times of Wages
- For the purchase of site/plot : Up to24 times of Wages
- Addition / alteration of house: Up to12 times of Wages
- Repair of House: Up to12 times of Wages
- Lockout or closure of the establishment: Equivalent to the total of wages multiplied by no. of months closed
- Withdrawal prior to retirement: 90% of total of both shares
Source: The data as mentioned above has been taken from the EPF website and author is not responsible for any sort of mistake or discrepancies.
The amount of advance/withdrawal is not required to be refunded under normal circumstances. If the amount is not utilized, the same should be refunded with penal interest. A fixed minimum balance in the account will be kept before arriving at the amount of advance admissible subject to the certain conditions ·
To conclude we can say that, one should know in detail about the systems and procedures of EPF to avoid problems in dealing with the same while in job or after retirement.