What is Employees' Provident Fund (PF)?
The Employees' Provident Fund (EPF) refers to a social security scheme designed to provide financial security and stability to employees after their retirement. It is regulated by the Employees’ Provident Fund Organization (EPFO), which is a statutory body under the Ministry of Labour and Employment, Government of India.
Under the Employees' Provident Fund (EPF) scheme, both the employee and the employer contribute a certain percentage of the employee’s salary every month towards the fund. The contributions are made regularly and accumulate over time, earning interest. The main objective is to create a retirement corpus for the employees, ensuring a regular income and financial stability during their post-employment years.
What are the Key features of the Employees' Provident Fund in India?
- Contribution: The employer and the employee each contribute 12% of the employee’s salary (basic salary plus dearness allowance) to the Employees' Provident Fund. In some cases, the contribution percentage may be lower for certain industries or establishments.
- Interest: The contributions made to the Provident Fund earn interest, which is determined by the government. The interest rate is usually revised annually.
- Withdrawal: The accumulated funds in the Provident Fund can be withdrawn by the employee upon retirement, resignation, or termination. Partial withdrawals are also allowed for specific purposes like purchasing a house, medical emergencies, education, marriage, etc.
- Tax Benefits: The contributions made to the Provident Fund are eligible for tax benefits under Section 80C of the Income Tax Act, 1961. The interest earned is also tax-exempt if the employee completes a minimum period of five years of continuous service.
- Universal Account Number (UAN): Every employee enrolled in the Provident Fund scheme is allotted a unique identification number called the Universal Account Number (UAN). This number remains the same throughout the employee’s career and helps in managing and tracking the Provident Fund account.
The Employees' Provident Fund scheme in India aims to provide financial security and a retirement corpus to employees. It not only benefits the employees but also promotes long-term savings and financial planning.
| Contributors | Monthly Percentage (Contribution) |
| Employee | 12% or 10% |
| Employer | 12% |
| Total Percentage | 24% |
Rates of Deduction
The rates of Employees' Provident Fund (EPF) deduction for both the employee and employer in India are as follows:
- Employee Contribution: The employee contributes 12% of their salary (basic salary plus dearness allowance) towards the PF. In certain cases, such as establishments with less than 20 employees or specific industries, the employee contribution may be reduced to 10%. This contribution is deducted from the employee’s salary every month.
- Employer Contribution: The employer also contributes 12% of the employee’s salary (basic salary plus dearness allowance) towards the PF. The employer’s contribution is divided into two parts: 3.67% goes towards the employee’s PF account, and the remaining 8.33% is allocated to the employee’s Pension Fund. However, the employer’s contribution towards the Pension Fund is limited to a maximum of Rs. 1,250 per month. Any additional amount beyond this limit is contributed to the employee’s PF account.
EPF Deduction in Runtime HRMS
Runtime HRMS (Human Resource Management System) helps streamline and automate various HR processes, including EPF deduction and compliance.
Here’s how Runtime HRMS and Payroll Software can assist in EPF deduction and compliance:
- Calculation of EPF Deductions: Runtime HRMS can automate the calculation of EPF deductions for employees based on their salary components. The software can handle complex calculations, considering the employee’s basic salary, dearness allowance, and any other applicable allowances.
- Integration with Payroll: Runtime HRMS ensures that EPF deductions are accurately reflected in employee salary statements. It can automatically deduct the employee’s contribution from their salary and generate salary slips with the necessary EPF details.
- Generation of PF Returns: The software can generate monthly EPF return (ECR), that needs to be submitted to the Employees’ Provident Fund Organization (EPFO) for PF remittance. This simplifies the process of creating and submitting PF challans, reducing manual paperwork and the chances of errors.
Runtime HRMS is fully customizable to select applicable components and rates of deduction. To know more about Provident Fund read the detailed documentation here. With changing laws, one can easily adjust Employees' Provident Fund (EPF) settings within Runtime HRMS and Payroll Software to stay updated with the latest compliance requirements.
