Important Things To Know About Employee Provident Fund
Employee Provident Fund is crucial since it offers finances to meet necessities in the future when you finally retire from employment. In the case, you do not make it to old age and die somewhere down the line, your family may use this money to meet their expenses in life. Often, people fall short of cash in times of emergencies and during those times, borrowing from your EPF account may be an option.
The contributions towards EPF are statutory as prescribed by the Law. Organizations that have more than 20 employees should ensure employees have the EPF account and contribute towards the fund. A provident fund account holder is able to accumulate the contributions plus interest, which they can withdraw upon resignation, death, or retirement.
In case of death of the EPF account holder, the family can benefit from the funds. At times, partial withdrawals although not advisable, may be done depending on specific situations for example, when you want to meet high education cost, illness expenses, or construct a dream house.
Any person being employed by a company or employer who is governed by EPF & MP Act should submit a declaration to their employer to show if they are already a member of the Provident Fund. This allows the employer to continue remitting contributions for the fund. In the event that an employee was a member before, they should apply for Form 13 so as to get the old account information and balance brought to the new account.
A person who changes job can apply for the transfer of their EPF to the new organization they are joining. If an employer defaults payment for contribution as mandated by the EPF & MP Act, recovery may be done by way of penalty. The penalty is applied depending on the period of default for example, if the default for payment for the contributions by an employer has lasted for less than 2 months, a 5 percent penalty applies and if it has taken six months and above, a 25 percent penalty applies. This penalty is intended to help employers keep their records clean towards contributions.
When an employee resigns from a company, they need to make a decision on how their provident fund investment should be treated. There are three options that a person can make and each has its own advantages and disadvantages. The person can cash in the fund, which in most cases, is not a viable option unless one has attained the retirement age, and feels that they cannot work anymore.
The person can preserve the benefits in way of transferring it to an approved retirement fund. When you join another company, you can transfer the EPF account to the new organization you joined. In withdrawing the EPF amount, there is a limit where it is considered tax-free but when it surpasses that limit, various taxes may apply to the amount.
It may be tempting to take advantage of the tax-free cash withdrawals before retirement when one has resigned from the job; however, it may not be good. In case of EPF, the operative term used is “retirement” meaning an investor should do all possible to preserve the benefits until that time of retirement so that they have sufficient funds to meet their monetary needs. When you continuously dip into the retirement savings after changing jobs, you will run a risk of depleting the retirement financial kit.