One of the main employment-related savings-cum-investment features is the Employee provident Fund (EPF) that is regulated by the statutory body of Labor Ministry, Ministry of Finance called the Employee Provident Fund organization or EPFO. There are various aspects of EPF that can help the salaried people during times of extreme need of funds in their lives. Let’s dig deeper into EPF withdrawal and find out how it works!
About EPF and the EPF Withdrawal Scheme
A certain fraction of the monthly salary gets deposited in a corpus fund, which is commonly known as the Employee Provident Fund. This is a long-term savings scheme that helps the salaried people to sustain life after retirement and lead life peacefully and happily. Any organization with the number of employees exceeding twenty must mandatorily register with the Employee Provident Fund organization that controls the Employee Provident Fund of the employees of India.
Usually, a monthly amount of 12% of the basic pay including dearness allowance, food allowance, if any is transferred to the EPF account of the employee as monthly EPF contribution. Although from the employer’s contribution, 8.33% goes to the Employee Pension Scheme (started in the year 1995) and only 3.67% goes to the EPF account. The rate of interest keeps changing and the current rate of interest is 8.7%.
Transfer / Withdrawal of EPF on Change of / Resignation from Employment
An employee has a unique EPF account that keeps continuing throughout the career life of the person even if jobs are changed as well. This makes it easy for a person to operate the same as well as withdraw the money whenever required. Generally, form 19 has to be submitted to the ex-employer for withdrawing money from EPF account which has to be signed and attested by the concerned authorized official. Along with this, one has to submit the resignation letter and a cancelled cheque to the EPFO office in order to withdraw the EPF amount. However, EPF withdrawal can be done subject to the following terms and conditions:
- One must not be employed for at least two months after resigning from the previous jobs or else, EPF withdrawal in between job switching is not permitted legally.
- As per experts recommendation, an employee cannot avail the various benefits of EPF such as tax-free interest, annual compounding along with long-term savings if EPF withdrawal is done before. Rather, it is better to transfer the amount from the previous employer’s account to the current employer’s account only.
- Government of India has launched a Unique Account Number or UAN for this purpose, which has made the process of transfer and EPF account management very much simpler these days.
Eligibility Criteria to withdraw EPF money
There are various eligibility criteria under the EPF withdrawal rules that one must satisfy in order to withdraw money from EPF. These are listed below:
- In cases of marriage of self, siblings or children, a person can withdraw maximum of 50% of EPF balance thrice in the lifetime subject to completion of minimum seven years of service in an organization.
- An amount of almost six times of the monthly salary of a person or total corpus can be withdrawn from EPF in cases of medical treatment of self, spouse, parents or children.
- A person can also withdraw from EPF for the purposes of construction or purchase of plot, provided the same is registered in his or her name or in joint names with the spouse as well. One must complete minimum five years of service in order to avail this facility and the withdrawal amount can be 24 times of the monthly salary for purchase of plot and 36 times for construction. However, this can be availed only once during the entire service period of the person.
- If a person has completed 10 years of service, then he or she is eligible to withdraw almost 36 times of the monthly salary or total corpus towards home loan repayment. The house must be registered in the concerned employee’s name or in the name of spouse or joint names with spouse as well.
- A person can also withdraw amount from EPF for house renovation or remodeling purposes after completion of five years of service. The house must be registered is self or spouse name or even in joint names with the spouse. A maximum amount of ten times of the monthly salary can be withdrawn for this purpose.
- Almost 90% amount from the total corpus fund of EPF can be withdrawn after retirement provided the individual is 54 years old.
- Apart from the above-mentioned major reasons, an individual can withdraw from EPF in various other circumstances as well. These include premature retirement from service, physical or mental disability, migration to overseas countries for prospective employment opportunities or even for getting settled in a foreign country as well.
Apart from the tax-related and savings-related advantages of EPF, there is another scheme known as the Employee Pension Scheme as well, which goes hand-in-hand with the EPF scheme for the salaried employees.
EPF Vs EPS
A part of the monthly salary amounting to almost 8.3% is being directed to the Employee Pension Scheme that is around one third of the PF contribution. This takes into account the number of years of service of a person along with the average salary drawn at the time of retirement of the person while calculating the amount of pension that the person is entitled to receive after retirement from service. However, compared to the five-crore member figure of EPFO, the corresponding figure in EPS is pretty low owing to the extremely meager amount of pension being received after retirement.
However, employees can always enhance this pension amount by some smart ways suggested by experts. These may include diverting 24% of the PF amount into the pension scheme, provided the basic pay is Rs.30,000 per month. If an individual is not interested towards pension from EPF, he or she can always get a lump-sum amount of the total EPS balance along with the EPF balance during the time of final withdrawal. However, the pension calculation in this case also will take into account the last drawn average salary and number of years of service rather than monthly contribution.
