Prologue

Dear Reader, Welcome! PersonalFN is pleased to bring to you a handy guide to one of the most popular investment destinations for the salaried person in the Government, public or private sector the Employee Provident Fund! In this handy EPF Guide, you will know more about your monthly contributions, covering topics such as: - What is the EPF and what are its main features? - Historical EPF interest rates will the EPF interest rate likely fall further? - EPF, EPS and EDLIS See where your money is really going - How to calculate your EPF contribution - How to read an EPF slip - How to get your grievances redressed and much more! So what are you waiting for? Just read on to know more With warm regards, Team Personal FN

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Index
What is the Employee Provident Fund (EPF)? What does your monthly EPF contribution go into? What is the Employees Pension Scheme (EPS)? What is the Employees Deposit Linked Insurance Scheme (EDLIS)? Is the breakup of the contribution different for the employee and employer? A Sample Calculation of the contribution break up? What interest rate do you earn on your EPF contribution? How has the EPF interest rate moved historically? How is interest credited? Can the EPF balance be checked online? Is it possible to get an EPF e-Passbook? What if the company has its own PF trust, can the balance still be checked online? Can you withdraw your EPF money? How do you read your PF account slip? Is it illegal to withdraw the PF in between jobs? What is a Voluntary PF?
4 4 4 5 5 6

9 9 11 11 12 14 14

What if you need more clarity regarding your EPF including on withdrawal, transfer etc? 14 Conclusion: From a Financial Planning perspective
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What is the Employee Provident Fund (EPF)? The EPF is created by the Employees Provident Fund Organization (EPFO) of India, a statutory body of the Indian Government under the Labour and Employment Ministry. In essence, it states that an organization having 20 or more permanent (on-roll) employees, working in any of 180 plus industries, should register with the EPFO. A provident fund is a fund that is created, through contributions, to provide financial support to individuals above a certain age, such as post retirement age. The Employee Provident Fund is just such a fund. Contributions are made on a monthly basis, by both employees and employers, thereby encouraging employees to save a portion of their salary each month. Investments made by a vast number of employees across India are pooled together and invested by a trust. The EPF is a tax free investment instrument for the salaried class. Interest earned on it is tax free, and returns are also not taxed. You also get a deduction under Section 80C for contributions made towards your EPF.

What does your monthly EPF contribution go into? Currently, the following three schemes are in operation under the EPF Act of 1952, and it is into these trusts that your monthly contributions go. These are as follows: a) Employees Provident Fund Scheme (1952) b) Employees Deposit Linked Insurance Scheme (1976) c) Employees Pension Scheme (1995) EPF, EPS and EDLIS are calculated on the basis of your Basic + Dearness Allowance (DA), which most organizations follow. Others consider your Basic + Dearness Allowance + Cash value of food allowance and retaining allowances if any.

What is the Employees Pension Scheme (EPS)? This part of your monthly contribution is targeted towards offering pension on disablement, widows pension and pension for nominees. It is financed by diverting 8.33% of your monthly contribution away from the EPF and towards the EPS instead. This is kept to a maximum of 8.33% of Rs. 6,500, or Rs. 541.The government also contributes the equivalent of 1.17% of your monthly contribution towards the EPS. The purpose of the EPS is to provide for the following:

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- Superannuation Pension: a member who retires after 20years of service and at or after the age of 58 years - Retiring Pension: a member who has rendered eligible service of 20 years and then retires before attaining the age of 58 years - Short Service Pension: for a member who has rendered more than 10 but less than 20 years of eligible service - Permanent Total Disablement Pension

What is the Employees Deposit Linked Insurance Scheme (EDLIS)? Under this scheme, employees receive life insurance. The cost of the scheme is borne by the employer, but the life insurance received under this scheme is limited to the very low amount of Rs. 130,000. Most employers opt out for the EDLI and choose to have a group life insurance cover for their employees; this works out better for the employees and does not increase any cost to the employer.

Is the breakup of the contribution different for the employee and employer? Yes, it is. An employees contribution goes directly into the EPF, while the employers contribution goes into the EPF, the EPS and the EDLIS. Here is how it is broken up: Employee: 12% into EPF This comes out of the employees salary. Employer: 3.67% into EPF 8.33% into EPS 0.5% into EDLIS 1.1% for EPF Administrative Charges 0.01% for EDLIS Administrative Charges

The above contributions are borne by the employer. As you can see, you as an employee do not contribute to the life insurance premium charges. This is borne by your employer. Also, the administrative charges for both the EPF and the EDLIS are borne by the employer. Your contribution goes solely towards your EPF and your Pension.

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Can you show me a calculation? There are 2 situations to consider: a Basic Salary of below Rs. 6,500 and a Basic of Rs. 6,500 or above. Lets look at a Basic Salary of below Rs. 6,500 first. Employee A draws a Basic of Rs. 3,500. Heres how the contribution works out: EPF EPF EPS EDLIS EPF Admin Charges EDLIS Admin Charges Employee Contribution Employer Contribution Employer Contribution Borne by Employer Borne by Employer Borne by Employer 12% 3.67% 8.33% 0.50% 1.10% 0.01% Rs. 420 Rs. 128 Rs. 292 Rs. 17.50 Rs. 38.50 Rs. 0.35

Now consider an employee drawing a Basic of higher than Rs. 6,500. In this situation the calculation can be done in a few different ways. Consider Employee B drawing a Basic of Rs. 7,000, here is how the contribution might be allocated under the first of the 3 possible calculations: Calculation 01: Here, the employer decides to contribute the EPF based on the Basic salary of Rs. 7,500, which is above the fixed limit of Rs. 6,500. So the total contribution comes to Rs. 900, or 12% of Rs. 7,500 So the EPS comes to Rs. 541. The balance of Rs. (900 541) then goes to the EPF. So the EPF contribution is Rs. 359. EPF EPS EPF EDLIS EPF Admin Charges EDLIS Admin Charges Employee Contribution Employer Contribution Employer Contribution Borne by Employer Borne by Employer Borne by Employer 12% of Rs. 7,500 8.33% of Rs. 6,500 12% of Rs. 7,500, less Rs. 541 0.5% of Rs. 7,500 1.1% of Rs. 7,500 0.01% of Rs. 7,500 Rs. 900 Rs. 128 Rs. 359 Rs. 37.50 Rs. 82.50 Rs. 0.75

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Calculation 02: Alternatively, the employer might decide to calculate the EPS and EPF both on Rs. 6,500, the fixed upper limit. In this case the EPF and EPS contribution respectively would be Rs. 239 and Rs. 541.

EPF EPS EPF EDLIS EPF Admin Charges EDLIS Admin Charges

Employee Contribution Employer Contribution Employer Contribution Borne by Employer Borne by Employer Borne by Employer

12% of Rs. 7,500 8.33% of Rs. 6,500 3.67% of Rs. 6,500 0.5% of Rs. 7,500 1.1% of Rs. 7,500 0.01% of Rs. 7,500

Rs. 900 Rs. 128 Rs. 239 Rs. 37.50 Rs. 82.50 Rs. 0.75

Calculation 03: Here, the employer might decide to calculate the EPF, the EPS and the employees share towards EPF as well, on the specified upper limit of Rs. 6,500. This is despite the fact that the employee is drawing a Basic of more than Rs. 6,500! So the contribution would be as follows: EPF EPS EPF EDLIS EPF Admin Charges EDLIS Admin Charges Employee Contribution Employer Contribution Employer Contribution Borne by Employer Borne by Employer Borne by Employer 12% of Rs. 6,500 8.33% of Rs. 6,500 3.67% of Rs. 6,500 0.5% of Rs. 7,500 1.1% of Rs. 7,500 0.01% of Rs. 7,500 780 541 239 37.5 82.5 0.75 Rs. 780 Rs. 128 Rs. 239 Rs. 37.50 Rs. 82.50 Rs. 0.75

As you can see, the first method would be the most beneficial to the employee, as the actual Basic is considered, and there is no upper limit of Rs. 6,500. However, what method is chosen can vary from company to company, so do check with your own company about what method they have employed. What interest rate do you earn on your EPF contribution? How has the EPF interest rate moved historically? How is interest credited? Lets take the second question first.

Historically, EPF interest rates have moved as follows:

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Year 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

% Rate of Interest Announced 8.50% 8.75% 9.15% 9.90% 10.15% 11% 11.50% 11.80% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 11% 9.50% 9.50% 9.50% 9.50% 8.50% 8.50% 8.50% 8.50% 8.50% 9.50% 8.25% 8.60%

Increase / Decrease / Constant Increase Increase Increase Increase Increase Increase Increase Increase Constant Constant Constant Constant Constant Constant Constant Constant Constant Constant Decrease Decrease Constant Constant Constant Decrease Constant Constant Constant Constant Increase Decrease Increase

% Change 0.25% 0.40% 0.75% 0.25% 0.85% 0.50% 0.30% 0.20% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -1.00% -1.50% 0% 0% 0% -1.00% 0% 0% 0% 0% 1.00% -1.25% 0.35%

So this answers our first question. Currently, for the financial year, your EPF is earning 8.60%, which is higher than last year (8.25%) but lower than 2 years ago (9.50%). www.personalfn.com Page 8

The Central Government revises the interest rate given on the EPF, as it does on the PPF, every year in the month of March/April depending upon the revenues in the EPFO made from its earlier years deposits. This year Labour Minister Mallikarjun Kharge announced a 0.35% increase in the EPF interest rate. This will benefit everybody covered under the EPF Scheme. And finally, the interest of EPF gets credited to the members account on monthly running balance with effect from the last day in each year. Remember, the interest you earn on your EPF is completely tax free. When you retire, your maturity proceeds are also not taxed. This makes this instrument very salary-friendly!

Can the EPF balance be checked online? Yes, it can. However the balance you see online will be of the last Financial Year unfortunately, which is quite dated information. Heres what you have to do: First Visit http://epfoservices.in/epfo/member_balance/member_balance_office_select.php Select the EPFO office where your account is maintained and furnish your PF Account number Enter your Employee Provident Fund (EPF) Account Number, Name (As per in EPF Slip) and your mobile number. Employee Provident Fund account number is divided into five parts for example: MH BAN/0044372/000/00003 digit account number You will receive an SMS containing your information, and also you will see a screen which shows you what your EPF balance is on the specified date. This service is free, it is not charged. But note the following as well: The name should be exactly same as it appears in your EPF slip The office and state have to be selected correctly. In a single state there can be many offices , so do make sure you choose the right one. The amount can be only up to a certain date which will be mentioned in the SMS

Is it possible to get an EPF e-Passbook? Yes it is. The benefit of this is you can actually check your passbook every time you make a contribution to your EPF i.e. every month! Doing this will help double check and you can be aware at any time of your latest EPF balance as well.

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Heres how you do it: a) Visit this website http://members.epfoservices.in/ b) Read the points given therein, and click Register. You will be asked to enter the following data: Mobile number Date of Birth Select a document (Pan / Aadhaar / Voters ID / License / Bank Account Number / NPR / Passport / Ration Card Enter the number as on the document. This may be alphanumeric, enter the number exactly as it is on the document. Enter the Name as on the document Enter your Email ID, and click GET PIN. Dont close the web page. The PIN will be sent to your mobile number. c) Once you have the PIN, you have to enter it in the box on the same web page, so dont close the web page. Select I Agree if you agree to the terms, enter the Pin and submit. You will see the following message: Registration successful. Your username and password has been sent to your mobile number. Please login to the EPFO portal with the same. d) Login with your ID. Click on Download E Passbook. You will be asked to Select the state where your establishment is covered and choose the EPFO Office.

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Then you will be directed to a screen such as this one:

When you generate the PIN, it will come your phone number and your mail ID. Enter the PIN on the space for Enter Authorization PIN (see the screen shot above) and click Get Detail. You will then be able to download a PDF file which contains your EPF Balance and other details.

What if the company has its own PF trust, can the balance still be checked online? Yes, it can. Some companies run their own PF trusts the companies deposit your PF money with these trusts for management instead of depositing it with the EPFO. If you work for such a company then also you can get your details online as EPFO has asked such private PF trusts to also post the account details online. This was due to be done by July 2011.

Can you withdraw your EPF money? Yes, you can. Technically, the EPF is not withdraw-able while you are still working, but there is some leeway here. The EPF balance can be withdrawn on certain occasions or to meet certain specific expenses, under certain conditions. What are these? Lets see: a) Marriage or education of your children, yourself or your siblings - Minimum 7 years of service should be completed. - Maximum amount that can be drawn is 50% of the till-date contribution

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- This can be availed 3 times only - Proof of the wedding or education is required i.e. wedding invite or certified copy of fee payable. b) To repay or partly repay a home loan in your name, your spouses name, or jointly owned by you both - For this the rules are a little stricter. You need to have completed at least 10 years of service. - The amount is also correspondingly larger, you can draw up to 36 times your basic salary. c) Alterations/repairs to an existing home for house in the name of self, spouse or jointly - You need a minimum service of five years (10 years for repairs) after the house was built/bought. - You can draw up to 12 times the wages, only once. d) Construction or purchase of house or flat/site or plot for self or spouse or joint ownership - You should have completed at least five years of service. - The maximum amount you can avail of is 36 times your wages. To buy a site or plot, the amount is 24 times your salary. - You can avail of this once during your entire working life. e) Medical treatment for yourself or your family (spouse, children, dependent parents) - if you are going to undergo a major surgery such as for leprosy, cancer, heart illness, mental ailments, or even TB, you can apply to withdraw your EPF. - The maximum amount you can draw is 6 times your basic salary - They will require proof of hospitalization for one month or more, along with a leave certificate for the corresponding period from your place of work.

How do you read your PF account slip? Now, as weve covered before, the employee contribution is a straight 12% into the EPF. But the employers contribution is allocated across the EPF and the EPS. The employer also bears 3 additional costs i.e. the EDLIS, the EPF admin charges and the EDLIS admin charges.

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At the beginning of every year, your company will give you your EPF slip. Your EPF slip will tell you your

contribution, and also the interest earned and accrued in your EPF account up to the prior financial year only unfortunately. This means that if you got the slip say in June 2012, that is FY 12-13, it will indicate the balance for FY 10-11. It is not unheard of to receive a slip that shows information that is even older than a year. You should clearly understand the entries in this slip to ensure you are able to track your account correctly. a) What does the account number stand for? This will contain alphabets and numbers for example MH/BAN/0011111/000/0000111. The first two entries indicate the regional PF office in which your company contributes your money. For instance, if your company contributes in the regional EPF office at Bandra, Mumbai in Maharashtra, the entry will be MH/BAN as it shows above. The next entries which are digits will reflect the employer code and the employee account number. b) How do you read the account balance? Your account balance will usually have the following entries. Opening balance: This is the amount you have accumulated till the beginning of a financial year. In the example above, the opening balance will indicate the fund balance at the start of the corresponding financial year (FY). This amount is further divided into two headsemployees contribution (the amount contributed by you plus interest) and employers contribution (the amount contributed by the employer plus interest). Interest: This entry indicates the interest that has been credited to your account for the corresponding FY. Contributions: This shows the payments made by you and your employer in the corresponding FY. Withdrawals: Any partial withdrawals or advances that you may have taken. www.personalfn.com Page 13

Closing balance: This is the sum of all the entriesthe opening balance plus interest accrued on the opening balance and on the contributions made in the corresponding FY, plus the contributions made in FY12. Advances you may have taken would be deducted from this kitty. This closing balance will become the opening balance for the next financial year.

Is it illegal to withdraw the PF in between jobs? This is a little known fact about the EPF that is often flouted. But yes, it is illegal to withdraw your PF between jobs. Withdrawal of the complete PF is allowed only under certain circumstances, such as if you are between jobs and have been unable to find a new job for 2 months or more.

What is a Voluntary PF? For those employees who have made contributions to their EPF, there is also the option of a Voluntary PF contribution that can be made besides the compulsory contribution to the EPF. This is popularly referred to as the VPF. In the EPF, you and your employer will both contribute to the PF in your name. In the VPF, you can choose to make an additional contribution of up to 100% of your Basic, but this will not be matched by your employer. The additional contribution made by you will earn the same interest rate as has been declared on the EPF for the corresponding Financial Year. all the same rules will apply to your VPF regarding withdrawal, transfer, interest rate and so forth. It also gets the same tax benefits i.e. deductions under Section 80C (to the maximum 80C limit, so keep this in mind), and a good risk free rate of return. However if you withdraw your VPF before 5 years, you will be liable to tax on it.

What if you need more clarity regarding your EPF including on withdrawal, transfer etc? Often times we have seen clients who need information about the PF and face trouble getting it. These are normal situations like a job change, or a withdrawal, and the information is not updated for months or years at a time. In such cases, you have two options. a) Grievance Redressal The EPF Organisation has a grievance redressal mechanism in place and it is covered under the

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Consumer Protection Act. The process of registering your grievance involves logging on to the website epfigms.gov.in/ and click Register Grievance. This is the website for the EPF I Grievance Management System. Since late last year, the EPFO has become a part of the Centralised Public Grievances Redressal and Monitoring System, which allows you to register the grievances and track their status online. It is a centralised system, so all your complaints are also monitored by the head office and they endeavour to respond to all grievances within 30 days. They settle grievances related to the following: - Final settlement / withdrawal of PF - Transfer of PF accumulations - Scheme Certificate - Issue of PF slip / PF Balance - Payment of Insurance Benefit - Cheque Returned / Misplaced - Others, for a grievance that is other than the ones listed above. b) Right to Information If the Grievance Redressal Management doesnt work, the RTI can come to your rescue. Filing an RTI in physical form can be done in 3 very easy steps. First, you need to buy a postal order from any Post Office. The charge for this is Rs. 10. This should be in favour of the Accounts Officer of the concerned EPFO Office. Second, you need to draft your letter to the RTI. Start it as you would start any formal letter to a Government Authority. Make sure to state that the letter is regarding Seeking Information Under the RTI Act 2005 You need to address your letter to the Central Public Information Officer, Employees Provident Fund Organisation, (Provide Concerned PF office address). You can find the address of your PF office youre your jurisdication at this link: http://www.epfindia.com/epfo_directory.htm Then state the relevant information, such as your name, EPF account number, and your contact information including phone and email ID. Make sure you mention your Name, Address, Contact telephone number and your Email id along with EPF account number. Next, clearly state your various queries as succinctly as possible, without leaving out any information that would be required.

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End with a declaration as follows: I do hereby declare that I am a citizen of India. I request you to ensure that the information is provided before the expiry of the 30 day period after you have received the application Finally at the end of the letter, mention the proof of payment of fees as - Proof of payment of application fee: Attached Indian Postal Order for Rs. 10 /- dated dd/mm/yyyy favoring Accounts Officer of EPFO as application fee. Finish with your signature, place, date and postal address. Third, send your letter by Speed Post or Registered Post. Couriers will not be accepted. You should receive a response within 30 days as per the RTI Act. Conclusion: From a Financial Planning perspective For a salaried person, contributions to the EPF offer a lot of benefits: a) Safe returns This is one of the safest debt instruments available in the country. It is government backed and guarantees safety of principal and interest earned. It can help you accumulate a significant corpus for your retirement, as the contributions happen month on month for your entire working life. This makes it suitable for very long term financial goals. b) Friendly tax treatment This is an E-E-E instrument meaning your contributions are deductible under Section 80C, interest earned is tax free and maturity proceeds are also tax free, provided contributions to the fund have been for more than 5 years of service. c) Interest earned on EPF is the equivalent of a high pre tax rate Considering that the EPF is paying 8.60% this year, this is the equivalent of a 12.28% rate of interest (for somebody in the 30% tax bracket). This interest rate is guaranteed and risk-free. Apart from the main features, it also allows withdrawals as detailed in an earlier question and you can also avail a loan against your EPF, using it as security. However keep in mind, this is a very long term instrument. If you have short term financial goals, dont try to fund it by withdrawals from your EPF. If your goals are in fact primarily short term, as is the case with young couples, or parents funding their childrens educations in a few years, you might want to consider only investing the minimum amount in your EPF, and channelizing your remaining funds towards a more liquid instrument, keeping your risk appetite and goal time horizon in mind.

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Contact us

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Disclaimer: This Guide is for Private Circulation only and is not for sale. The Guide is only for information purposes and Quantum Information Services Limited (Personal FN) is not providing any professional/investment advice through it. The Guide does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. Personal FN disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this guide, including without limitation the implied warranties of merchantability and fitness for a particular purpose. Personal FN and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this guide is at the users own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. Personal FN does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this guide are and shall remain with Personal FN. This guide is for your personal use and you shall not resell, copy, or redistribute this guide, or use it for any commercial purpose. All names and situations depicted in the Guide are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.

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