EPFO stands for employees provident fund organization. It’s a social security organization, responsible for providing social security to employees engaged in the organized sector.
This organization was founded in the year 1952 under the employee’s provident fund and miscellaneous act, with the aim of providing social security by assisting CBT (Central Board of Trustees) with regard to managing compulsory contributions in provident fund scheme and insurance scheme. The EPFO is administered by the ministry of labor and employment of the Government of India.
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SEE ALSO: EPF Withdrawal Rules 2018
A salaried who makes regular contributions to the EPF scheme, makes a 12% contribution of his monthly salary towards the EPF account. The EPF is deducted from the total salary from the time he starts rendering service in an organization or company. EPF contribution includes deposit made by both the employee and the employer.
The employee contributes 12% of the basic salary plus dearness allowance (12% of basic + D.A) towards EPF. Your employer also contributes 12% towards provident fund account that is further routed towards various components of your PF account. Out of 12% contribution from your employer, 3.67% is invested in the employees provident fund scheme. The remaining 8.33% goes towards your Employee’s Pension Scheme.
For the purpose of understanding this concept, let’s assume Mr. Ashutosh Singh joined service after 15th November 1995. The pension calculation is different for older employees.
EPS Pension = (Pensionable annual Salary X Number of Years Service) /70.
So for older employees, pensionable annual salary is calculated as average of last 5 years contribution to EPS.
Herein lies the key difference. Under the old rules, this could not be higher than Rs 15,000 a year after 1st Sep 2014 and Rs 6,500 per year before that.
According to the new rules, if you contribute 8.33% of your basic + DA, this amount would be used in the revised EPS pension calculation.
The number of Years Service = 10 (minimum eligibility of EPS pension) to maximum 35 years of service. If the service is 20 years or more, 2 years will be added as a bonus.
If the number of years of service is less than 10 years, you can withdraw the EPS amount.
SEE ALSO: EPF Loan Eligibility Calculator
After a long wait, the Supreme Court had made a landmark judgment in favor of subscribers to EPS scheme. The subscribers of the EPS scheme will henceforth be eligible for higher pension. Previously the requests of the subscribers were turned down by the Provident Fund offices.
Post Supreme Court judgment, the subscribers to the EPS scheme are eligible to receive higher pension. So, no-wage ceiling limit leads to higher contributions to EPS and this enables an employee receive higher pension. But, very few EPF members were aware of this clause.
Based on the above points, let’s see the impact of this judgment under different scenarios:
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