Employee Provident Fund (EPF) Benefits|Why Merge PF Accounts

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How People Use Their Hard-Earned Money

Most of us over here belong to the working-class, working in customer service, technical service, working as workers or teachers. We are paid monthly or daily depending on our jobs yet every time we are in doubt… or in most cases worried, as to how much we are able to save from what we earn.

There are indeed people who are good at saving, however, in most cases, they save up to do something or get something – like going on a holiday or buying a new car.

And then there are those, like honestly, many of us who are hardly able to save anything and before it is even half the month, our bank accounts are depleted and we have to depend on our credit cards for survival.

The question, however, is not always about surviving the present day or time but about what will happen when we retire, the time when we will be without any jobs… we have all seen the plight of the old people at homes who are looked down as burdens by their own children. Will we face the same plight? That thought is enough to send shivers down anybody’s spine… including me.

If you all have noticed, there has been a sudden spike of advertisement from different companies asking people especially those between 25 – 40 to start any form of investment plan… be it a retirement plan or a mutual fund plan, to start a post office savings scheme or a public provident fund (PPF) scheme, why do you think there has been a spike? To alert us of taking action for our survival in future. To not face the same plight that old age people are facing at the moment.

It is now or never, and therefore, it is time to plan.

That being said, we are talking about a certain scheme that has been created for the working-class people, for the people employed in both the public and the private sectors brought out by the EPFO (Employee’s Provident Fund Organization).

  • EPFO is one of the World’s largest Social Security Organizations in terms of clientele and the volume of financial transactions undertaken. At present it maintains 19.34 crore accounts (Annual Report 2016-17) pertaining to its members.
  • The Employees’ Provident Fund came into existence with the promulgation of the Employees’ Provident Funds Ordinance on the 15th November, 1951.The Employees’ Provident Funds Bill was introduced in the Parliament as Bill Number 15 of the year 1952 as a Bill to provide for the institution of provident funds for employees in factories and other establishments. The Act is now referred as the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 which extends to the whole of India.
  • The Central Board of Trustees administers a contributory provident fund, pension scheme and an insurance scheme for the workforce engaged in the organized sector in India. The Board is assisted by the Employees’ PF Organization (EPFO), consisting of offices at 135 locations across the country.
  • The Board operates three schemes – EPF Scheme 1952, Pension Scheme 1995 (EPS) and Insurance Scheme 1976 (EDLI).

The organization was created with the intention of providing a scheme that comprised of a compulsory contributory provident scheme, a pension plan scheme and an insurance scheme. This also led to all companies being regulated under this organization to provide a compulsory and fair share to the employees every month for as long as the person worked.

So, what are the advantages of a provident fund scheme?

  • Tax benefits

    – Apart from the fact that an employee’s contribution towards an EPF account is eligible for tax exemption under Section 80C, the interest rate earned is exempt from income tax. According to experts, your EPF account continues to earn interest even if it has been lying dormant for more than 3 years. Also, EPF withdrawals are not taxable after five years of continuous service, unless the employer terminates his/her business or the employee voluntarily quits his/her job.

  • Lifelong pension

    – While employers and employees both contribute 12% of wages in EPF, 8.33% of the business’ offer is redirected towards the Employees’ Pension Scheme (EPS). As per the retirement subsidize body, 10 years of contributory participation guarantees deep rooted annuity under Employees’ Pension Scheme 1995.

  • Insurance benefit

    – There are the advantages guaranteed under the Employees Deposit Linked Insurance (EDLI) Scheme, which is a protection spread gave by the EPFO. The enlisted candidate will get a singular amount installment in case of the demise of the individual protected, during the time of the administration.

  • Premature withdrawal option

    – Although the money parked in your EPF account is for your retirement only but partial early withdrawal from EPF is now permitted for different reasons like marriage, higher education and making a down payment for a house.

– One can withdraw the complete amount if he/she is unemployed for  more than 2 months.

  • Higher returns

    – The EPFO contributes 5-15% of its investible stores in return exchanged assets (ETFs). Besides, 45-half of the PF kitty must be put resources into government protections, 35-45 percent in the red instruments and 5% each in currency advertise instruments and framework trusts. Notwithstanding, the EPFO has been chipping away at a product that would help show retirement reserve funds in real money and ETF parts independently. The following enormous jump from that point give individuals a choice to increment or abatement interests in stocks according to singular hazard craving. Actually, the EPFO’s pinnacle dynamic body, the Central Board of Trustees, has just proposed investigating such conceivable outcomes.

So, what happens to your PF account if you change your job?

Every employee of a company is entitled to a PF account; however, the trouble starts when the same employee is leaving his job for better opportunities. There was a time when a person moving to another job had to write a letter or send an email to the HR dept. of the previous company to release the PF amount.

There was a stipulated period after which the PF would be released and a cheque handed over or sent by post to the employee. Once joining another company, a new PF account will be created in the name of the employee. The cycle continued again if the employee again decides to quit the job after sometime.

Things have changed now, on October 1st, 2014, the Prime Minister of India, Narendra Modi announced what was indeed a revolutionary move – The Universal Account Number (UAN).

The salient features of UAN are as follows –

UAN is Universal Account Number 

  • The UAN is a 12-digit number allotted to an employee who is contributing to EPF and will be generated for each of the PF member by EPFO. For example, 111222333444. The UAN will act as an umbrella for the multiple Member Ids allotted to an individual by different establishments and also remains same throughout the lifetime of an employee.
  • It does not change with the change in jobs. The idea is to link multiple Member Identification Numbers (Member Id) allotted to a single member under single Universal Account Number. This will help the member to view details of all the Member Identification Numbers (Member Id) linked to it.
  • The Major benefit of UAN or Universal Account Number will include easy tagging of multiple Employee’s Provident Fund Member Id under a single number, thus reducing the confusion. The UAN will help in easy transfer and withdrawals of claims. Along with these, services like Online Pass-Book, SMS Services on each deposit of contribution and Online KYC Update can be provided on the basis of UAN number.
  • There are new UAN portals created to check your EPF balance and nowadays, all the details like how to check UAN status, download UAN EPF passbook, check EPF balance, provident fund claims and many more facility are provided by new UAN portal.
  • EPFO has now started to provide the refund of Administrative charges if all the KYC details are updated for all employees. This incentive program is announced for the Year 2016-2017.

Why is it important to merge 2 PF accounts?

  • Have you worked in more than one company where you have kept reserve accounts? Have you kept the sums lying in your PF account with the prior company without moving the PF assets to the present business?
  • Provided that this is true, you should shed your latency and solidify all records by combining them. The Employees’ Provident Fund Organization (EPFO) has prompted supporters to consolidate every one of their records to diminish the assessment frequency if there should be an occurrence of early withdrawals of assets.
  • Tax is deducted at source on EPF corpus if the cash is withdrawn without any valid reason(such as medical emergency, house purchase or construction, and higher education) before one completes 5 years (60 months) because all withdrawals made before completion of 5 years of continuous service are subject to tax. So a merger of past PF accounts will expand the time service and could help in getting away from the tax.
  • Additionally, one ought to have a Permanent Account Number (PAN) given by the Income Tax Department to decrease the tax rate in the event that one needs to pull back PF cash for any predetermined reason before the required 5-year time of commitment to maintain a strategic distance from charge on withdrawals.
  • According to EPF rules, the TDS rate is 10 percent if the part submits PAN number. Without a PAN number, the TDS is deducted at a lot higher pace of 34.6 percent.

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