How To Save Tax? Know All About EPF
Are you a fresher or an experienced professional?
How much do you know about the EPF deduction from your salary?
I remember when I first started working, I felt like I landed in a totally different world when seniors used to talk about taxations or PF accounts. That's because no one in our college or school teaches about PF, UAN number or anything related to the same!
Even today, when a person is experienced he/she is bound to get confused with these terms as in our day to day life, we seldom discuss much on how we are dealing with our Provident Fund or how it is going to work for us (unless your career revolves the finance-related subjects).
However, many of us do know about its basics, but when subjected to scenarios like abrupt EPF withdrawal, relocation of state of residence, job change, tax benefits, we find ourselves all confused.
You can read this article to know, How To Withdraw PF Online?
We then try to ask our colleagues and other known ones about the process and the way outs. And due to the lack of correct information, we tend to miss the best alternative.
Hence to avoid any of such circumstance, let us start to know what is EPF and a couple of similar, very crucial question with their answers.
What is EPF?
To understand what is EPF, let us start with its full form.
- EPF stands for Employees’ Provident Funds.
- It comes under the Miscellaneous Provisions Act, 1952.
- This scheme is managed under the aegis of the Employees' Provident Fund Organisation (EPFO).
- The entire idea of establishing an EPF is to take care of one’s post-retirement needs.
- It is available to all salaried employees.
- Every establishment which employs 20 or more persons is covered under PF
And how is PF fetched, deposited from your salary?
Thankfully, it's not that difficult to understand. Let us look at the 5 points below,
- The total amount that the employee and the employer contribute plus the accrued interest is nothing but your EPF.
EPF= Amount from the employee + Amount from the employer’s contribution + Accrued interest
Where Amount from the employee = Amount from the employer’s contribution
- 12% of your basic wages, Dearness Allowance, retaining allowance will be considered as your part of contribution towards your EPF.
Interest in EPF is calculated on the basis of monthly running balance. Your opening balance for the next year would be,
Interest= opening balance + total monthly contributions + interest on the (old opening balance + contribution).
- You will be allocated with a UAN - Universal Account Number.
UAN is a 12-digit unique number by EPFO, which will act as an umbrella for the multiple Member IDs allotted to an individual by different establishments.
- EPF is tax-free
- Your contribution is tax-deductible under Section 80C of the Income Tax Act.
What is the difference between PF and UAN?
- PF number or Member Id or Member Identification Numbers is the number given by EPFO
- It allows the employer to submit EPF money of employee.
- It is for the employer as he opens an EPF account for its employee and contributes to that account every month.
- Member ID, on the other hand, is the account number of employee in the EPFO, so when the employee changes the job then the new employer will open a new account number for him/her in EPFO.
- This means that you would have as many Member ids as the number of employers contributing on your behalf to EPFO.
- An employee will have one UAN or Universal Account number.
- As the same suggests, it will be common and hence will remain the same always.
- It will also maintain all your Member Ids.
- Therefore, when you change your job and if your new employee is contributing to EPF, he/she will give you a new Member ID.
- Now, this new Member ID has to be linked to your UAN number.
So now when you know, that PF is our primary retirement plan and it helps us in numerous ways, it is highly recommended that you take time out of your busy schedule to keep yourself updated on the same.
Only saving money should not be the goal, how well you manage, segregate and store it for the future is also crucial.
Do comment below and let us know your thoughts and questions if any.