The government has been under fire ever since it proposed to tax 60 per cent of Employee Provident Fund (EPF) withdrawal. Finance Minister Arun Jaitley on Wednesday said he would spell out the final stand on EPF tax proposal soon during the budget debate in Parliament.
Amid this controversy, we take a look at 5 lesser know facts about the Employee Provident Fund.
EPFO MAY NOT BE MANDATORY FOR YOU
Your subscription to Employee’s Provident Fund (EPF) generally comes with your salary package at the time of employment. You are not given a choice to opt out. However, many may not know they can opt out of the scheme and decide to invest that money on any other avenue of their choice. However, this is limited to people who earn a basic salary above Rs 15,000. For those with basic below Rs 15,000 it is mandatory. Also, you should have never been a subscriber of EPF in the past.
The question is whether it is advisable to opt out? Your EPF contribution silently builds a retirement corpus that can be huge if you are contributing over a long period. Also, if it is added to your take-home salary it becomes taxable at the applicable tax rate. Also, as a fixed income investment avenue, with a reasonably high interest rate, it is risk free.
Hence it would be wise to avail of the option rather than opt out of it.
CONTRIBUTION CAN BE HIKED BEYOND 12 PER CENT OF BASIC
If you so feel, you can ask your employer to hike your EPF contribution beyond the 12 per cent of your basic that is deducted. In fact, this can go up to 100 per cent of your basic pay. This is called Voluntary Provident Fund.
However, if you do so, the employer is under no obligation to match that extra contribution as they have to do for the initial 12 per cent.
So, should you go for this hike? If you are thinking of fixed-income investment, you may consider this option because. At present 8.8 per cent annual rate of interest (which was fully tax-free until Budget 2016-17 proposed tax on 60 per cent of corpus generated through investments after April 1, 2016) the returns are much healthier than other fixes income instruments such as bank fixed deposits, company deposits and government bonds. You will also get tax rebate under section 80C upto Rs 1,50,000.
However, those with risk-taking abilities can think of equities and mutual funds as option to invest as well.
MONEY CANNOT BE WITHHELD BY EMPLOYER
If you had a bitter parting with your employer and are afraid that your employer will block the amount by not completing the withdrawal formalities, take it easy. Your employer cannot block the provident fund amount legally. It is your money and it does not remain with the employer. It is with the Employees Provident Fund Organsiation (EPFO). If your employer is adamant you can send a legal notice. Ultimately, and the employer will have to complete formalities to let you avail of the corpus.
THERE ARE LIMITATIONS ON WITHDRAWAL WHEN YOU RESIGN
If you have left a job where you maintained your EPF account, you cannot immediately withdraw the accumulated money. You need to be without a job for two months at the least to claim your accumulated money. You have to give a declaration on the same.
In case you take a new job, the EPF account can be transferred and fresh contributions be made in them from your salary.
EFPO OFFERS INSURANCE COVER
If your salary is below Rs 15,000 you can avail of benefits under the Employees Deposit Linked Insurance Scheme (EDLI). The scheme provides life insurance of up to Rs 6 lakhs. The actual amount to be paid in the event of death to your family or nominee is decided on the last drawn salary.
The employer contributes 0.5 per cent of your basic pay as premium for this cover. The sum assured is paid to the family of an EPF subscriber in case of his or her death. However, companies that already provide life insurance benefits or group insurance policy to employees are exempted from contributing to this scheme.