The Employees’ Provident Fund Organisation (EPFO) is a retirement body that manages 3 social security schemes in India. The Employees’ Provident Fund (EPF), Employees’ Pension Scheme (EPS) and the Employees’ Deposit Linked Insurance (EDLI) scheme are all government-run savings schemes that help with building a retirement fund for individuals employed across various sectors.
Understanding EPF contribution
According to the rules set by the EPFO, all organisations that employ 20 individuals or more are required to contribute towards the EPF. The EPF contribution works based on a monthly contribution from both the employer and employee. Each month 12% of an employee’s basic pay is deducted and contributed towards the EPF.
Similarly, the contribution made by the employee is matched by their employer. Of the 12% contributed by the employer, 8.33% is contributed towards the EPS and the remaining is contributed towards the EPF. However, the amount that is contributed towards the EPS is capped at Rs.1,250. If the 8.33% that is to be contributed towards the EPS exceeds this amount, the remaining is contributed towards the EPF. To know more about the breakup of EPF contribution, click here. The amount contributed towards the EPF earns interest that is compounded annually and is paid out at the end of every financial year. Furthermore, the amount earned through interest is free from taxation.
As stated previously, the EPF is a retirement fund and subscribers should ideally only file withdrawal claims when they reach retirement age. However, the EPFO allows its members to make withdrawals from their EPF account under a few circumstances. You can choose to make a partial or complete withdrawal from your EPF account under the following circumstances:
The EPFO permits its members to make withdrawals from their EPF account in events where they have to pay for medical treatment for themselves or their family members. When withdrawal claims are filed for this purpose, subscribers are permitted to make withdrawals that amount to 6 months of their basic wages and dearness allowance or their share of the EPF contribution with interest—whichever is lesser. Unlike other instances where premature withdrawal is permitted, subscribers can make withdrawals for medical emergencies at any point during their contribution to the EPF and there is no restriction on the number of times a withdrawal claim can be filed.
Purchase or construction of a new house
EPF subscribers are eligible to make withdrawals from their EPF account in order to pay for the construction or purchase of a new home. In order to be eligible to make a withdrawal for this purpose, the EPF member is required to have completed 5 years of contribution towards the scheme. When claims are filed for this purpose, EPF members can withdraw up to 24-times their monthly wages and dearness allowance in order to purchase land for construction and up to 36 times their monthly wages and dearness allowance for the purchase of a house. Members are permitted to make a withdrawal for this purpose only once during the entire tenure of their EPF contribution.
After completing 5 years of contribution towards the EPF, subscribers are eligible to make partial withdrawals from their EPF account for the purpose of renovating their homes. When a withdrawal claim is filed for this purpose, the EPF member is permitted to withdraw up to 12 times their monthly wages. A withdrawal for this purpose can be made only once during the tenure of the EPF contribution.
In instances where the EPF subscriber has been unemployed for a period of 2 months, they can withdraw the entire amount that has been accumulated in their EPF account.
The EPFO permits its members to withdraw funds from their EPF account in order to fund a wedding. This can be for the wedding of the subscriber, their sibling, or child. When filing a withdrawal claim for this purpose, the subscriber is permitted to withdraw up to 50% of their contribution towards the EPF. To be eligible to withdraw funds from their account for this purpose, the subscriber is required to have completed 7 years of contribution towards the EPF.
Withdrawal rules when relocating
The EPF withdrawal rules listed above do not apply when a withdrawal claim is filed when relocating to a different country. In this case, there is no waiting period and the amount in the EPF account is credited as soon as the claim is approved.
Procedure for withdrawing EPF
- Once all the formalities for your relocation have been confirmed, you will have download the withdrawal form from the EPFO portal or collect it from your employer.
- If your Aadhaar card is linked with your UAN, the withdrawal claim can be filed and submitted to the EPFO without the approval of your previous employer.
- When submitting the form, you will have to mention your reason for withdrawal.
- The EPFO will require you to submit documents to prove your relocation to another country.
- The amount is usually credited to your bank account as soon as it is approved by the EPFO.
If the relocation is temporary, it is advisable not to withdraw your PF and instead obtain a Certificate of Coverage (CoC) from the EPFO that proves you are covered under India’s social security scheme and do not require coverage from your host country for the same. In this way you will be exempt from contributing towards the social security scheme of another country while continuing to maintain your EPF account in India.