 MBA 7 EPF  Prashant S Sawant

EPF  PPF available to all, even minors.  EPF available only to salaried employees  PPF is voluntary, EPF is mandatory if you are in a company that pays EPF & your basic salary is up to Rs 15,000/- ( EPF optional for others).  12% of basic pay & DA

EPF Concept  Employer deducts 12% of employee’s salary & contributes same amount from his side.  Employer’s contribution can be 12% of salary+DA or 12% of Rs 15000/-  Some employer’s pay 12% of actual salary even if it is more than Rs 15,000/-

Facts about EPF that every employee should know  Do you get 80c benefit for the part contributed by your employer ?  You can withdraw your EPF money only at the retirement or in case of medical emergency or when unemployed for period of more than 2 or 3 months.  It is advisable to transfer the EPF ac to the new employer, in case of job change.  You need to submit details of your previous EPF ac to your new employer. New employer will carry out necessary formalities to get the accumulated amount transferred to your new EPF ac.  Generally this procedure takes a month.

Contd …  If you withdraw your money after 5 years, it is tax-free.  If withdrawn before, the amount will be added to your income & taxed. Hence better to transfer the ac than closing.  Can withdraw money while you are still working, in case of medical emergencies, house construction, loan repayment or any other emergencies provided your ac has been active for at least 5 years.  The limit for withdrawal is 90% of your balance in the ac.  You can also withdraw up to 50% of your EPF balance for your child’s marriage, if your ac has been active for minimum of 7 years.  If you switch jobs & your new employer doesn’t offer EPF ?  Have voluntary PF where only you contribute.

Contd …  ROI on EPF is compounded annually.  Can vary every year based on GOI decision.  It can be 9%, 8% & then 9.5%.  Although GOI requires your 12% contribution but also you should check with your company whether they allow higher contribution.  You can contribute 20%, employer still will be on 12%.  This can be for tax benefit.  Can not make lump sum payment.  If you close EPF ac, it takes couple of months before the money gets deposited in your ac.

Contd …  Only companies having 20 or more employees need to have EPF scheme going.  Nobody can claim the amount in your ac, except you.  No matter how long the amount was unclaimed, you can always get it back.  There is no time frame within which you have to claim the money.  Your ac will not get any interest, if your ac has been dormant ( no contributions ) for more than 36 months.

Contd…  EPF is a sound & secure way of investing.  Imp point : Gets directly deducted from the salary.  Only thing is to be careful about is, transferring the ac while job changes.  SSN Social security number, when gets implemented the transfer of ac will not be required.

Points to consider before investing  Scheme is mandatory for employees of almost all types of firms that employ more than 20 people.  Can you invest more than 12% that is required.

Advantages  80C  Employer’s contribution considered ?  You do not have to open an EPF ac, your employer does it for you.  On closing the ac, the money gets deposited in your bank ac directly in 2 to 3 months.  If you are switching jobs, just mention the previous ac number to the new employer.  No one but you can claim the money in your ac except in case of your death where the amount is handed over to your nominee/s.  If you hold the EPF ac for 5 yrs or more, the amount you get on closing the ac is completely tax free.

Disadvantages  You can not withdraw the amount in your EPF while you are working, except in case of emergencies.  If you close your EPF ac & withdraw your money before 5 yrs, you will have to pay tax on the amount received.  It is not a liquid investment.  On closing the ac, you get the amount in _____ months.

Investment meter  Safety  *****  Liquidity  **  Returns  ****

Tax impact  80C : Rs 1.50 L  Maturity tax free, for 5 yrs old ac.  Else, the amount is added to your income & taxed as per your tax bracket. 

 Thank you.  Prashant Sawant   Global training group