Employee’s Provident Fund (EPF) is a retirement benefit scheme, which is available to all salaried individuals. Employee Provident Fund is maintained by the Employees Provident Fund Organisation of India (EPFO) and any company with over 20 employees is required by law to register with the EPFO.
It’s a platform where employees can save a fraction of their salary every month that can be used in the event that you are rendered unable to work, or upon retirement.
The contribution shall be made in the Employee Provident Fund (EPF) for the employee’s welfare by the employee and the employer both. The deduction is available under Section 80C. Employer and Employee both have to contribute a 12% of the employee’s basic salary every month towards EPF. This benefit is given to employees for their retirement. Section 10(11) and 10(12) of the Income Tax Act’1961 defines the exemption on the amount added to the provident fund.
The Types of provident funds are:
I. Recognized Provident Fund (RPF) as recognized by Commissioner of Income Tax (CIT) under EPF and Miscellaneous Provision Act, 1952. It applies to enterprises employing at least 20 employees.
Employee’s Contribution: Deduction u/s 80C is available
Employer’s Contribution: It is exempted up to 12% of Salary. Any contribution made by employer exceeding 12% of Salary shall be added to employee’s salary income.
II. Unrecognized Provident Fund (UPF) is not recognized by the Commissioner of Income Tax. The employers and employees start these schemes.
Employee’s Contribution: No Deduction u/s 80C is available.
Employer’s Contribution: Any amount of contribution is not taxable.
III. Public Provident Fund (PPF) under Public Provident Fund Act, 1968 is another system of contributing to the provident fund. Self-employed people can also take part in this scheme. A minimum contributing limit of Rs. 500 per annum and a maximum of Rs. 1,50,000 per annum are set. Deduction u/s 80C is available and the amount received including interest is fully exempt.
a) Employee leaves the job after five years of employment; or
b) Where the service period is less than five years and reason for termination is discontinuance of employer’s business or ill health; or
c) The balance in RPF is reassigned to RPF with the new employer on re-employment.
IV. Statutory Provident Fund (SPF) is meant for Government employees or employees of Universities or Educational Institutes affiliated to University.
Employee’s Contribution: Deduction u/s 80C is available.
Employer’s Contribution: Any amount of contribution is fully exempt.
Tax Treatment of Provident Fund
|Particulars||Recognised Provident Fund||Unrecognised PF (UPF)||Statutory PF (SPF)||Public PF (PPF)|
|Employer’s Contribution||Exempted up to 12% of Salary, above that is added to salary income of the employee.||Not taxable||Not taxable||Not taxable|
|Employee’s Contribution||Section 80C Deduction is available||Section 80C deduction is not available||Section 80C Deduction is available||Section 80C Deduction is available|
|Interest on PF||Any interest over and above 9.5% is added to Income from Salaries. Until 9.5% interest is exempt.||Not taxable||Exempt||Exempt|
|Amount withdrew at a retirement time||Cell content longer||Exemption subject to certain conditions*.||Employer contribution and interest will be taxable under the head Salaries Income; Contribution made by an employee is not taxable, and interest contribution of employee is taxable under the head Other Sources Income.||Exempt.|
* Exemption subject to certain conditions are*:
a) Employee leaves his job after five years of employment; or
b) In case the service period is less than five years and reason for termination is discontinuance of employer’s business or ill health; or
c) The balance in RPF is reassigned to RPF with the new employer on re-employment
Withdrawals from EPF
Tax on Employee Provident Fund is the major concern for every employee. Some believe that EPF withdrawals are not taxable. Withdrawal from EPF can be taxable. TDS will also be deducted in certain cases.
If the employee withdraws the EPF balance before completing 5 years of service, then EPF balance is taxable.
For calculating the period of 5 years of service, it is not mandatory that service should be continued with the same employer. Employee may have worked in different organizations. But when a person switches the job, he must transfer his previous company Provident Fund balance to new company’s PF Account (UAN Number will remain the same).
When TDS is deducted on EPF withdrawal
TDS on EPF withdrawal will be deducted if such withdrawal is more than Rs 50,000. This is applicable from June 2016. Earlier this limit was Rs 30,000.
The Rate of TDS – TDS will be deducted at 10 % provided PAN is submitted. Otherwise, TDS is deducted at the maximum marginal rate of 34.608 % if a person fails submit PAN or Form 15G or Form 15H.
a) TDS will be deducted in case of PF is transferred from one account to another PF account
b) After 5 years of the period of service, no TDS will be deducted.
c) In a case where Form 15G or Form 15H are submitted by the employee, then TDS will not be deducted and their income would not be taxable after receiving the payment of accumulated PF balance. Form 15H is submitted by senior citizens (above 60years of age) and Form 15G is to submitted by those individuals who are below the age of 60 years.
Rules of EPF Withdrawal
New PF withdrawal rules have been introduced by the government. Let’s understand the Old v/s new rules.
1. Withdrawal restrictions
Whole EPF withdrawal is not allowed till the age of retirement. The PF account consists of the contribution made by the employer, a contribution made by employee and interest earned on employer and employee contribution.
The exception to new rule – The exemption is given to female employees resigning from the services for getting married or due to childbirth or pregnancy. Withdrawal of whole EPF Balance shall be allowed in such cases.
2. Retirement Age
The retirement age is 58 yrs. An individual can withdraw up to 90% of PF balance on attaining the age of 57 yrs.