What is Employee Provident Fund (EPF)- Universal Account Number, Income Tax on it
What is Employee Provident Fund (EPF)- Universal Account Number, Income Tax on it

 

What is Employee Provident Fund? (EPF)

Employment in the formal or informal sector, as well as the private or public sector, is of immense social, economic, and legal concern in developed and developing economies particularly India. It is commonly seen as the means of earning a livelihood.

In the course of employment, it is reasonably presumed that the employers and the employees look out for the best approach to mutually protect each other’s interest.

In other words, the employee works so hard to attain the objective of the employer while the employer among other obligations promptly pays the employer his salary and other allowances. The obligation of protecting the employers or the employee’s interest may be implied or statutorily posited.

The essence of statutorily stipulating from protections (particularly pecuniary benefit) afforded to an employee is not farfetched, where such is not stipulated but left entirely to be discussed and agreed by the employer and the employee.

The mode adopted by either of the parties in negotiating and ultimately enforcing the same will most likely lead to a breakdown of law and order, hence the need for the dictates of the law.

This discussion is not exclusively centered on employment but on one of the policies which equally cuts across taxation in the bid of fending for an employee even when the employee has retired.

From the above what will quickly come to the mind is the Pension Scheme which is the most notorious form of making a post-retirement employment provision for an employee. This discussion will center on the Employee Provident Fund under the auspices of the Employee Provident Fund Organization.

DEFINITION EMPLOYEE PROVIDENT FUND

While the meaning and the general object of the Pension Scheme is general knowledge, one may wish to ask:

What is the Employee Provident Fund?

Employee Provident Fund is the fund realized by the appropriation of a fraction (which is usually 12% unless the employee opts to contribute more) of an employee’s earning for the purpose of providing the employees with the lump sum payments at end of their employment or in the event of an emergency.

See the definition/interpretation section of the Employee Provident Act 1952 (as amended).

Employers with a such number of employees (the minimum of 20 employees) are mandated to create an Employee Provident Fund account with the Employee Provident Fund Organization.

The Employee Provident Fund Organization is by virtue of the Employee Provident Act, 1952 responsible for the administration of the Employee Provident Funds. The decisions reached by the Organization or its department may be challenged that Employee Provident Fund Organization Appeal Tribunal which sits in some selected states in India.

Against the above background and definition of Employee Provident Fund, this discussion will extend to the definition, description, and explanation of other principles which are applicable to give effect to the idea of Employee Provident Fund Scheme. These principles are discussed in the following headings:

  1. The Universal Account Number and the Procedure of creating it.
  2. Who is authorized to deduct from the Employee Provident Fund?
  3. Contribution towards Employee Provident Fund.
  4. Withdrawal of the Employee Provident Fund Amount.
  5. Online transfer the Employee Provident Fund amount from one Employer to another.
  6. Income Tax on Employee Provident Fund Withdrawal.
  7. How to link old Member ID/Employee Provident Fund Account with UAN.

THE UNIVERSAL ACCOUNT NUMBER

A Universal Account Number which is different from Employee Provident Fund Number is used by employees to access their profile and employment record for the purpose of the Employee Provident Fund.

Before the universal Account number can be used by an employee to view his record with the present and past employers his Universal Account Number must be activated in accordance with the procedure stated below:

  1. Log on to the Employee Provident Fund Organization’s website and select “Activate UAN”, after reading all the terms and instructions, Select the radio button signifying that you have read, understood and agreed to be bound by the condition stated.
  2. Fill in the details such as the Universal Account Number and other information which may be required of the Applicant, after which the GET PIN button should be selected.
  3. The PIN will be sent to the registered phone number of the employee-applicant which was supplied at the time of registration.
  4. On completing the activation, the employee-applicant will create a login detail i.e username and password for accessing the Universal Account Number services under the portal.

WHO IS AUTHORIZED TO DEDUCT FROM THE EMPLOYEE PROVIDENT FUND?

Though the employer and the employee contribution towards the Employee Provident Fund scheme, the employer is authorized to make deductions from the EPF account and transmit the deduction to the Pension Fund.

CONTRIBUTION TOWARDS EMPLOYEE PROVIDENT FUND

Both the employer and the employee are mandated to pay 12% of the employee’s income and allowances towards the Employee Provident Fund.

However, most employers in the private sector may contract otherwise with the employee at the time of employment. The contributor(s) may out of their volition contribute in excess of the statutorily required 12 % minimum contribution.

WITHDRAWAL OF THE EMPLOYEE PROVIDENT FUND AMOUNT

Funds under EPF scheme can be withdrawn entirely on the retirement of the employee or he remains unemployed for a minimum of two (2) months or more which must be certified by an officer authorized to do so.

Such withdrawals can be done manually or by an online application.

ONLINE TRANSFER OF THE EMPLOYEE PROVIDENT FUND AMOUNT FROM ONE EMPLOYER TO ANOTHER

It is possible and permitted for an employer to transfer his EPF account electronically from one employer to another. In doing so he is expected to follow the following steps:

  1. Go to  epfindia.gov.in the official website of the Employee Provident Fund Organization.
  2. Select member account transfer.
  3. Login into your profile on the website.
  4. Select “One Member – One EPF Account (Transfer Request).
  5. Fill in the particulars of previous EPF account sought to be transferred.
  6. A one-time password (OTP) will be sent to the mobile phone/email of the applicant for authentication and Submit.

INCOME TAX ON EMPLOYEE PROVIDENT FUND WITHDRAWAL

Notwithstanding the various circumstances under which withdrawals made from Employee Provident Fund account may be taxed like early withdrawal, generally, it is not taxable.

The following illustration is necessary in order to further explain where taxation is applicable to the withdrawal made under the Employee Provident Fund.

  1. Where the member withdraws an amount less than 50000 Rupees within five years of creating an Employee Provident Fund account, the member will not be taxed on the withdrawal but must reflect such withdrawal from the Employee Provident Fund account as an income within the fiscal year.
  2. Where the member withdraws any amount even where it exceeds 50000 Rupees he is not obligated to reference the withdrawal from the Employee Provident Fund account as an income in the fiscal record.
  3. Where the employment is determined on the grounds of ill health on the part of the employer or employee making the continuation of the employment impossible, withdrawals made from the Employee Provident Fund account will not be taxed.
  4. Where the business of the employer ceases withdrawals made from the Employee Provident Fund account will not be taxed.
  5. Where due to circumstances beyond the employee’s control withdrawal is made from the Employee Provident Fund account, such shall not be taxed.

HOW TO LINK OLD MEMBER ID / EMPLOYEE PROVIDENT FUND ACCOUNT WITH UAN.

Due to the  UAN (Universal Account Number), the avenue to consolidate multiple Employee Provident Fund accounts as one for members has been created. This must be done with the guideline below:

  1. The applicant-member needs to have the Universal Account Number within reach.
  2. The EPF account number to be consolidated with Universal Account Number must be within reach.
  3. Bank Account Number and other banking details which might be required of the applicant must be ready.
  4. The Universal Account Number must have been activated prior to this in accordance with the procedure above mentioned.

The process to be followed:

  1. Visit Employee Provident Fund Organization Portal.
  2. Go to “Our Services” tab to access “for employee services”.
  3. Click on “One Employee – One EPF Account”.
  4. Fill the required details and generate OTP, which is delivered on your registered mobile number linked with Universal Account Number.
  5. Provide earlier ID for the Employee Provident Fund, click on accept the declaration and submit the request.

 

CONCLUSION

The Employee Provident Fund as administered by the Employee Provident Fund Organization is a very unique scheme though similar to the notorious Pension Scheme in India and other countries but the most striking feature of this scheme is the fact that funds can be withdrawn from the account even before the retirement of the employee.

This might pose a great temptation to employees who may keep emptying their accounts under this scheme once they have a new employer. Interestingly, the law had gone ahead to create room for prudent employees to transfer or consolidate their multiple accounts if they are not inclined to administering them individually.

This legislative prowess exhibited in making effort to curb the mismanagement of funds by the employee is a welcomed development which must spread out to other aspects of the scheme.

It is surprising and unacceptable that the Act governing this scheme seem concerned or limited to employers with a minimum of 20 employees and consciously permits the private companies from making contributions under this scheme.

It is expected that the above observation should be addressed to wit:

Mandating even an employer with a staff to subscribe to the Employee Provident Fund Organization as well as imposing a minimum contribution over and above the 12% as contributed by the employee, at the earliest opportunity for amendment or in the alternative through administrative guidelines compel private companies and companies with less than 20 staff strength to comply with this Act.

 

 

 

 

 

 

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