EPF Rate – 2019

Union Ministry of Finance on 28th April has hiked the Employees Provident Fund (EPF) interest rate to 8.65 percent as approved by retirement fund manager EPFO, benefitting over 6 crore formal sector workers.The interest rate offered by EPFO was 8.55 percent in 2017-18.

PF (Provident Fund) or EPF is also called the Employee Provident Fund Scheme. It is one where the employees contribute a small portion of their remuneration i.e. 12% of their basic pay every month. A matching amount is contributed by the employer. This is to be used to fund the employee’s retirement. EPF withdrawal by employees can, however, be done earlier itself i.e. during the course of their employment.

• EPFO will have a surplus of Rs 151 crore as on date after doling out higher interest rates. Finance ministry will have to give its go ahead to the interest rate declared by EPFO following which it will be notified by the labour ministry.
• The CBT is a tripartite body with representatives from the government, employers and trade unions headed by the labour minister. It is the apex decision-making body of the EPFO. The 8.65% rate is higher than that available on government small savings schemes, the return on which is benchmarked to market rates.
• EPFO has an active subscriber base of more than 60 million and manages retirement savings of over Rs 11 lakh crore.
• The EPFO provided a five-year-low rate of interest of 8.55% for FY18. It pegged the rate at 8.65% in FY17 and 8.8% in FY16. It provided 8.75% interest in FY14 and FY15. The rate of interest was 8.5% in FY13.
• Overall, EPFO manages a corpus of over ?11 trillion. In 2017-18, it had fresh accruals of ?1.31 trillion. In the year ending March 2019, the annual deposit is pegged at ?1.46 trillion. From the annual deposits, the fund manager invests 15% in equity and the rest in debt instruments, including government and corporate bonds.

Comparison of EPF Rates

10 Important rules about EPF Withdrawal

1. Money from the EPF account cannot be withdrawn during employment. It is a long-term retirement savings scheme, so full money can only be withdrawn after retirement.

2. Partial withdrawal from EPF accounts is permitted in cases of an emergency such as medical emergency, house purchase or construction, wedding and higher education. Partial withdrawal is subject to limits depending on the reason. The account holder can request online for partial withdrawal.

3. Although the EPF corpus can be withdrawn only after retirement, early retirement is not considered until the person reaches 55 years of age. EPFO allows withdrawal of 90% of the EPF corpus one year before retirement, provided the person is not less than 54 years old.

4. The EPF corpus can be withdrawn if a person faces unemployment before retirement due to lock-down or retrenchment.

5. The EPF subscriber has to declare unemployment in order to withdraw the EPF amount.

6. As per the new rule, EPFO allows withdrawal of 75% of the EPF corpus after one month of unemployment. The remaining 25% can be transferred to a new EPF account after gaining new employment.

7. As per the old rule, 100% EPF withdrawal was allowed after two months of unemployment.

8. EPF corpus withdrawal is exempted from tax but under certain conditions. Tax exemption on EPF corpus is permitted only if an employee contributes to the EPF account for five continuous years. The EPF amount is taxable if there is a break in the contribution to the account for five years. In that case, the entire EPF amount will be considered as taxable income for that financial year.

9. Tax is deducted at source on premature withdrawal of the EPF corpus. However, if the entire amount is less than Rs50,000, then TDS is not applicable. Keep in mind, if an employee provides PAN with the application, the applicable TDS rate is 10%. Otherwise, it is 30% plus tax. Form 15H/15G is a declaration form, which states that a person’s total income is not taxable and thus, TDS is avoidable.

10. An employee does not have to wait for approval from the employer for EPF withdrawal. It can be done directly from the EPFO, provided the employee’s UAN (universal account number) and Aadhaar are linked, and the employer has approved both. The EPF withdrawal status can also be checked online.

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