Provident Fund (PF), which is deducted every month from the monthly salary of employed employees, is not just a mandatory deduction, but the biggest financial security for the future. But when it comes to understanding the balance in the PF passbook, timing of annual interest credit, transferring funds on change of job or withdrawal in case of emergency, most of the employees get entangled in the complexity of the rules. When to fill which form, whether interest continues to be earned on PF after leaving the job, and after how many days of unemployment the entire amount can be withdrawn – questions like this often trouble the employees. Through these 12 key questions and their detailed answers, prepared on the basis of official guidelines and EPF rules of Employees Provident Fund Organization (EPFO), you can easily clear every confusion related to your PF account.
Question 1: How is the 12% PF deducted from salary divided between EPF and EPS?
12% of the employee's basic salary and dearness allowance (DA) is directly deposited in the Employees Provident Fund (EPF). The employer (company) also contributes an equal contribution of 12%, but this 12% employer's share is divided into two parts: 8.33% goes into the Employee Pension Scheme (EPS) (maximum Rs 1,250 per month at a statutory salary limit of Rs 15,000) and the remaining 3.67% is deposited directly into the EPF account. Apart from this the company bears separately 0.50% EDLI (Insurance) and 0.50% administrative charges.
Question 2: How is interest calculated in EPF account and when is it added to the account?
EPFO calculates interest on the basis of Monthly Running Balance. That is, the proportionate interest for the month is calculated on the net balance in your account at the end of every month. However, this interest is not reflected in the passbook every month. The accumulated interest of the entire financial year is credited to your PF account in lump sum with effect from 31st March at the end of the financial year (usually after the final notification of the Ministry of Finance).
Question 3: Will interest on PF continue if I leave the job or remain unemployed for a long time?
If an employee leaves the job and does not start contribution in a new company, he still gets regular annual interest on the balance in his PF account till the age of 58 years (retirement). Under EPF rules an account is considered inoperative only when the employee completes the age of 58 years and thereafter no application for withdrawal is made for 36 months (3 years). The account never becomes inactive before the age of 58 years and interest continues to be credited.
Question 4: Is the interest received on PF completely tax-free?
As per income tax rules, if an employee's own EPF and VPF contribution exceeds Rs 2.50 lakh in a financial year, the interest earned on the amount deposited in excess of Rs 2.50 lakh becomes taxable. In cases where there is no employer contribution, the limit is Rs 5 lakh. Taxable interest is added to your 'Income from other sources' and tax is deducted as per your income tax slab.
Question 5: On changing jobs, does a new UAN have to be made or does the old one continue?
A person has only one Universal Account Number (UAN) throughout his working life. While changing jobs, you have to give your existing UAN and Aadhaar details to your new company. The new company generates a new Member ID under the same UAN. If for some reason two different UANs have been created, one should immediately file an online request on the EPFO portal to merge the old UAN into the new UAN, as it is against the rules to have two active UANs.
Question 6: How to transfer PF balance of old company to new company account online?
After changing jobs, it is very easy to transfer the old PF funds to the new member ID. For this, login to the Member Seva Portal and go to the 'Online Services' menu and click on 'One Member – One EPF Account (Transfer Request)'. Here select your previous Member ID and select either current or previous employer for verification. After this, submit the form through OTP received on Aadhaar registered mobile number. The old money is transferred to the new account a few days after digital verification by the employer.
Question 7: Why is it necessary to have bank account, PAN and Aadhaar link (KYC) in PF account?
EPFO has made 100% digital KYC mandatory for all online services. If your Aadhaar is not linked and verified with UAN, the company will not be able to credit the monthly contribution into your account. If PAN card is not linked, TDS can be deducted at the maximum rate of 34.6% instead of the normal TDS of 10% at the time of withdrawal. If the bank account number and IFSC code are not correct, the online claim money gets rejected by the bank and returned back to EPFO.
Question 8: Can more than 12% be deducted through Voluntary Provident Fund (VPF) while in job?
Yes, any employee can deduct up to 88% of his basic salary and DA as VPF in addition to his mandatory 12% EPF (i.e. total up to 100% of basic + DA). VPF also gets the same safe government interest as normal EPF and it also gets tax exemption under 80C. For this, the employee has to fill the VPF form and submit it to the HR/Payroll department of his organization.
Question 9: For what needs can advance be withdrawn from PF while in job?
EPFO facilitates non-refundable advances under Form 31 for many emergency and social obligations. This includes immediate financial assistance for treatment of serious illness of self or dependents, for purchase or construction of a house (minimum 5 years of service), for higher education and marriage of self or children (minimum 7 years of service), and during natural calamities or epidemics. There is no lock-in or minimum service period requirement on advances given against illness and pandemic.
Question 10: When can the entire PF and pension money be withdrawn?
After leaving the job, Form 19 and Form 10C are filled for final settlement of the entire PF fund. According to EPFO rules, you can withdraw up to 75% of your total PF balance as advance after 1 month of leaving the job, and if you remain unemployed continuously for 2 months (60 days), the remaining 25% balance and the entire pension (EPS) amount can be withdrawn together. In case of retirement, the entire amount can be withdrawn without any waiting period on completion of 58 years of age.
Question 11: Is tax deducted on withdrawal of PF after working for less than 5 years?
If the total continuous service of an employee is less than 5 years and he withdraws his PF, then the amount withdrawn is taxable. If the total withdrawal amount is Rs 50,000 or more, 10% TDS is deducted on PAN card submission. If PAN is not linked, TDS is deducted at the maximum rate (34.6%). However, no TDS is deducted even before 5 years in case of serious illness, closure of the company or loss of job due to reasons beyond the control of the employee. PF withdrawals are completely tax-free after completion of 5 years of continuous service.
Question 12: When does EPS pension start and what is the minimum service period for it?
To get monthly pension under the Employee Pension Scheme, the total EPS service of the employee should be minimum 10 years (120 months). Regular monthly pension starts from the age of 58 years after completing 10 years of eligible service. If one wishes, one can also take early pension (at a lower rate) after the age of 50 years. If the total service period is less than 10 years, the employee can withdraw the pension amount in lump sum through Form 10C or can preserve his service period by taking a Scheme Certificate till he gets a new job.