Employee Provident Fund (EPF) and Universal Account Number (UAN)
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What is EPF?
An provident fund is a fund that is created, through contributions, to provide financial support to individuals above a certain age, such as post retirement age. The Employee Provident Fund (or EPF) is just such a fund. Contributions are made on a monthly basis, by both employees and employers, thereby encouraging employees to save a portion of their salary each month. Investments made by a vast number of employees across India are pooled together and invested by a trust.
The EPF is a tax free investment instrument for the salaried class. Interest earned on it is tax free, and returns are also not taxed. You also get a deduction under Section 80C for contributions made towards your EPF.
What does your monthly EPF contribution go into?
Currently, the following three schemes are in operation under the EPF Act of 1952, and it is into these trusts that your monthly contributions go. These are as follows:
a) Employees’ Provident Fund Scheme (1952)
b) Employees’ Deposit Linked Insurance Scheme (1976)
c) Employees’ Pension Scheme (1995)
EPF, EPS and EDLIS are calculated on the basis of your Basic + Dearness Allowance (DA), which most organizations follow. Others consider your Basic + Dearness Allowance + Cash value of food allowance and retaining allowances, if any.
Is the breakup of the contribution different for the employee and employer?
Yes, it is. An employee’s contribution goes directly into the EPF, while the employer’s contribution goes into the EPF, the EPS and the EDLIS. Here is how it is broken up:
Employee: 12% into EPF This comes out of the employees’ salary.
Employer: 3.67% into EPF 8.33% into EPS 0.5% into EDLIS 1.1% for EPF Administrative Charges 0.01% for EDLIS Administrative Charges
The above contributions are borne by the employer. As you can see, you as an employee do not contribute to the life insurance premium charges. This is borne by your employer. Also, the administrative charges for both the EPF and the EDLIS are borne by the employer. Your contribution goes solely towards your EPF and your Pension.
Interest on EPF
The rate of interest on EPF is determined by the Union government, in consultation with the central trustee board. The notification is available on the EPF website on an annual basis. The interest calculated
on EPFs, for the 2015-16 fiscal, is 8.75%. While contribution to the
EPF is monthly, interest is calculated at the end of the fiscal.The EPFO had announced 8.65% rate of interest on deposits for 2016-17. The rate was 8.8% in 2015-16. Retirement fund body Employees’ Provident Fund Organisation (EPFO) has reduced interest rate on deposits to 8.55 percent for the financial year 2017-18 following a general decline in interest rates
There is an opening balance in the EPF account at the beginning of
each fiscal which is the corpus accumulated till then. For the next
fiscal, the new opening balance will be: old opening balance + monthly
contribution all through the year + interest (contribution + old opening
balance). Compound interest in EPF is paid on the credit amount
standing in the employee’s name as on 1 April every year.
What is UAN
UAN stands for Universal Account number which is generated for each of the PF Account Number at EPFO. The UAN acts as an umbrella for the multiple Member Ids allotted to the same individual. The idea is to collate multiple Member Identification Numbers (Member Id) allotted to a single member under single Universal Account Number.