All about EPF and UAN
Features of EPF and UAN:
EPF (Employee Provident Fund), or simply PF, is a major savings scheme in India for almost all salaried people working in the government, public, or private sector organisations. It’s a very important tool for retirement planning in our country. The tax-free (compounding) interest and the maturity amount ensure a steady growth of the money.
What is an EPF – Employee Provident Fund?
A provident fund is created to provide financial stability and security to elderly people. A person begins contributing to this fund when he/she starts out as an employee. The contribution, in most cases, is on a monthly basis. The purpose of an Employee Provident Fund (EPF) is to help employees save a part of their salary every month so that they can use it when the employee is no longer fit to carry on working i.e. when the employee has to retire from service. Both the employer and employee contributes to the EPF at a rate of 12% of the basic salary and dearness allowance (if any) every month. The total contribution to the EPF is thus 24% per month.
The Employee Provident Fund (EPF) is implemented by the Employees Provident Fund Organisation (EPFO) of India. Any establishment that has 20 or more workers employed in 180+ industries, as specified by the government, has to register with EPFO. The EPFO is a statutory body of the Union government, under the labour and employment ministry. It’s one of the biggest social security organisations in the world regarding the number of members and volume of transactions undertaken.
Interest on EPF
The rate of interest on EPF is determined by the Union government, in consultation with the central trustee board. The notification is available on the EPF website on an annual basis. The interest calculated on EPFs, for the 2015-16 fiscal, is 8.75%. While the contribution to EPF account is monthly, interest is calculated at the end of the fiscal.
There is an opening balance in the EPF account at the beginning of each fiscal which is the corpus accumulated till then. For the next fiscal, the new opening balance will be; old opening balance + monthly contribution all through the year + interest (contribution + old opening balance). Compound interest in EPF is paid on the credit amount standing in the employee’s name as on 1 April every year.
EPF also offers nomination facility. Member-employees can nominate their father, mother, spouse or child. Brothers and sisters, however, cannot be nominated for the EPF. The nominee is contacted if the employee dies during the service period and the money is handed over. If the EPF member has a family (spouse and children) at the time of nomination, the nomination must be in favour of one or more individuals of the family.
A nomination in favour of a person not from the family is considered invalid. A fresh nomination has to be filed by the member upon his/her marriage and all nominations made before marriage will be considered invalid.
Nomination is important in PFs. The purpose of appointing a nominee is to have a person who is responsible and trustworthy for handling the nominator’s assets after his/her death.
Contribution by the employer towards the EPF is exempt from tax. The employee’s contribution is taxable, but at the same time, eligible for the deduction, according to the provisions of section 80C of the Income Tax Act.
The money which an employee initially invests in the EPF, the interest earned thereon, and the money that you finally withdraw after a specific period (say five years), are all exempted from income tax.
Transfer of EPF and UAN
You can apply to withdraw your PF only if you are not employed for at least two months after quitting the previous job. It is recommended to transfer the accumulated PF amount while joining a new company instead of withdrawal because it forms the debt part of your investment portfolio and yields good tax-free returns.
The EPFO, as already said, is currently offering 8.75% as annual interest on PFs. Thus, it makes sense to stay invested. Withdrawal of the EPF corpus, before completion of five years of employment with an employer, is taxable. The amount is added to the salary income and taxed accordingly. But if left untouched, the EPF amount is entirely tax-free.
For instance, you have an EPF account for the past five years and you change the job and withdraw your PF amount. Now, all the income of the previous years will get recomputed from the beginning and will be taxable. Besides, the contribution of the employee and the interest earned, will be added to the current income, subject to relief under section 89.
Until October 2014, all employees had their respective EPF number, associated with the employer. A change in job meant that allotting of another PF number. It often led transferring the investment from one account to another. Multiple accounts were a big concern and the EPFO was inundated with complaints regarding transfer of funds from one account to the other. EFPO, to address this problem, launched the Universal Account Number (UAN) scheme.
What is UAN?
The UAN is made of 12 digits allotted to all employees contributing to the EPF. The UAN is a landmark step to shift the EPF service to the online platform, making it more user-friendly. The UAN of the employee remains the same throughout the entire service life. It doesn’t change while changing jobs.
How is the UAN allotted and how are EPF and UAN linked?
1. The EPFO allots employers the UANs of all employees for which the employer contributes to the EPF. If you don’t have a UAN, maybe because it’s your first job, the employer will appeal to the EPFO for generating the number along with the member identification number (ID). The member ID is the number given by EPFO for allowing the employer to deposit your EPF money.
2. For an employee already having a UAN, the employer will request the EPFO to generate a new member ID for the employee. The member ID will then be linked to the employee’s UAN.
3. The employer will then give the UAN to the employee(s), who have to provide their know-your-customer (KYC) papers to the employer.
4. The employer will update the KYC details on the EPFO website.
How to check UAN status?
Website: After you have got the UAN from your employer, visit the EPFO website at http://uanmembers.epfoservices.in/ Click on the “Activate your UAN” tab. Read the instructions that come up and click on “I have read and understood the instructions”.
Information: You will then be asked to enter your UAN and mobile phone number. Next, you have to select your state and EPF office address from the drop-down menu. You also have to enter the member ID. Having entered these details, click on “get PIN”.
Authorisation: The PIN is generated and sent to your registered mobile number. The number has to be then submitted for completing the activation.
User ID and password: Once the activation is complete, you will be asked to create your login ID and password to access the UAN services.
Points to note: You can access the user manual on the website’s activation page that provides information on UAN activation and how to use the portal. Members can also download the UAN card once the registration is complete. They can also access the EPF passbook.
Benefits of UAN
The UAN extends several benefits to an employee. Here are some of them:
1. EPF transfers and withdrawals take a much lesser time.
2. There is no need to depend on the employer to forward claims regarding EPF transfer or withdrawal. The requests can be easily submitted online.
3. Details of all EPF accounts can be viewed at one place.
4. All EPF accounts will have greater transparency. The EPFO sends monthly SMS alerts on PF deposits and balance.
5. Soon, employees won’t have to apply to transfer their PF accumulation while changing jobs. The system is being developed and is expected to be introduced shortly.
FAQs on UAN
1. Do I still have to transfer my old PF account while changing jobs or will it be automatically merged?
At the initial stage of the UAN scheme implementation, you have to transfer from the old account while changing jobs. While the process is much convenient as it can be easily done online, in future, employees won’t have to apply separately in this regards.
2. How will the UAN help in the transfer or withdrawal process?
Since there will be no need for employee verification (because the KYC information is already seeded in the UAN), you won’t require to approach your former employer for transfer or withdrawal. You can apply online.
3. Can I upload my KYC papers via the member portal?
Yes, you can. Your employer must digitally approve the paper you upload. Till then, the status of your KYC will show as “pending”.
4. What has to be done if I change my job?
You simply have to declare the UAN to your new employer. Since June 2015, the UAN scheme has been made mandatory for all employers.