Pension under Employees Provident Fund EPF

 Pension under Employees Provident Fund EPF

-Dr. Lalit Kumar Setia

The Employees Provident Fund (EPF) is known as Retirement Fund for the employees associated with EPF. Every month a portion of the salary of an employee is deducted by the employer and deposited in his/her UAN (Universal Account Number) allotted by Employees Provident Fund Organization.

Amount of EPF and EPS

The amount of Employees Provident Fund EPF is increased every month with the contribution from salary of employee (i.e. 12% of the basic salary) and the contribution of employer is generally equivalent to the employee’s contribution. A portion of employer’s contribution i.e. 8.33% of the basic salary, is credited to the Employees’ Pension Scheme EPS. Suppose an employee is getting salary of Rs. 10000, then Rs. 833 will be deposited in his EPS every month by the employer i.e. 8.33% of the Basic Salary of employee. If salary is Rs. 15000, then Rs. 1250 will be credited. If salary is above Rs. 15000, then also maximum contribution to the EPS is up to Rs. 1250 per month.

The maximum amount of EPS contribution is 8.33% of basic salary (max. Rs. 15000) i.e. Rs. 1250 per month.

Who receives the Pension under EPS?

Only the employees registered in EPF and whose contribution is received for at least 10 years regularly, are entitled for pension. Generally, the amount of pension is given at the age of 58, not before that age. However, if an employee fills the form 10D then he can take the pension from the age of 50 years also. In case of death of an employee whole tenure of service is less than 10 years, then the amount of pension can be withdrawn in the year, in which the employee be of 58 years’ age. There are four types of pension provided by the EPFO:

a. Superannuation Pension:

It is provided to an EPFO subscriber at the age of 58. The employee may be in service or may not be in service, he is entitled for the superannuation pension. He has to fill form 10D for applying the pension.

b. Reduced Pension:

If an employee left the service, then he can start taking of pension from the age of 50 years. Such pension is provided as reduced pension. An EPF subscriber who made an active pension contribution in EPF for 10 years or more; can withdraw early pension if he or she has attained the age of 50 but is less than 58 years.

The pension amount is reduced to a rate of 4% per year until the employee reaches the age of 58 years.

Firstly original pension amount will be calculated and then a percentage (i.e. 4% per year) will be reduced from the original pension. Suppose an employee decides to take the reduced pension in the age of 54 years that is 4 years earlier than of 58 years. Then the pension will be reduced by 16%. If original pension is Rs. 5000 then he will be provided Rs. 4200 per month.

c. Disablement Pension:

If an employee becomes disabled and leave the service due to total or permanent disablement; then he is provided disablement pension. From the date of disablement, the employee gets pension paid for lifetime. The member will be required to have a medical test to ascertain that he/she is not fit for the work that he/she was doing before getting disabled.

d. Widow and Children Pension:

If an employee is died and the spouse and children are provided pension from the EPFO, then it is known as Widow and Children Pension. Such pension is provided to the spouse of died employee till the death of spouse or remarriage of the spouse. The minimum pension is Rs. 1000 per month and the amount of calculated according to Table C of EPS (i.e. the amount of pension which would have been admissible as if employee had retired on the date of death).

In case, the employees is decreased then the surviving children receive pension, in addition to the widow pension. This pension will be applicable till the age of 25 years of the children, maximum paid to two children. The amount will be 25% of the widow pension amount.

e. Orphan Pension:

If an employee is died and there is no surviving spouse. Then his son or daughter becomes orphan. Then up to the age of 25 years, the son or daughter is entitled for the pension. Such pension is known as Orphan Pension. It is an amount i.e. 75% of the widow pension.

f. Nominee Pension:

If an employee has no spouse and no children and he declares nominee by filling form 2(R) then the nominee is provided pension.

g. Dependent Parent Pension:

If an employee has no spouse and no children and he also not declared anyone to be nominee; then the dependent father or mother provided the pension after the death of the employee.

d.

Amount of Pension under EPS

After retirement the amount of pension under EPS is minimum Rs. 1000 per month and maximum Rs. 7500 per month. How it is calculated?

The monthly pension is equal to Salary multiple by years of EPS contribution and divided by 70. Suppose an employee’s pensionable salary is Rs. 15000 per month during the last five years of his tenure of service.

The pensionable salary is average monthly salary received by an employee in last 60 months before he/she decides to exit the EPS.

Then the monthly average salary of last five years will be Rs. 15000. If an employee works for 35 years, then his pension will be

(15000x35)/70 = Rs. 7500 per month which is maximum pension.

Because the contribution to EPS is based upon the salary up to Rs. 15000, the pension cannot exceed Rs. 7500 per month.

What will happen if upper limit of Rs. 15000 is removed?

The limit of Rs. 15000 may be removed and in case, it happens, then the amount of pension will be increased. For example, if the average salary of last five years is. Rs. 42000 and the employee worked for 30 years, then the pension will be (42000x30)/70 i.e. 18000 per month.

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved. 

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 24th September 2021 and last updated on 24th September 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

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https://drlalitsetia.blogspot.com/2018/12/payment-and-status-of-income-tax.html

Money Management

Money Management

By Dr. Lalit Kumar Setia 

"All our dreams can come true, if we have the courage to pursue them".  -- Walt Disney.

Everyone tries to manage his money with the help of investments, making fruitful expenditures, and exploring new sources of money. The superintendents in government department use the tool of budgeting to control the expenditures. The tool of budgeting expenditures leads to great quantum of savings and helpsin keeping control over wasteful expenditures. The people prefer to put money in Fixed Deposits, Recurring Deposits as these investment tools have lower risk than Debt-oriented funds. But in case of slowdown, the central banks start reducing the interest rates on Fixed Deposits and Recurring Deposits which the interest & return on Debt-oriented funds remain the same. How one should plan to invest in Debt funds?
What should someone do to manage money either coming through salaries or business incomes; requires art of budgeting. Let’s understand the tips and steps to generate more incomes and contain expenditures:

1.   Notice the sources of Incomes: 

One should build a book or write on paper regularly, the sources of income or money; from where he or she is getting money. A list of all sources should be noted down first and then try to explore how to increase the cash flow from such sources. One should try to build friendships, associations with individuals & corporate to increase the cash flows in life. After noting down each income and inflow of cash, one can build a sheet showing money in his or her hand in each coming month of the year. One can also plan new sources of earning money like through Google Adsense, through building more skills, understanding and using crypto-currencies etc.  

2.   Notice the applications of money or expenditures: 

Second step is to control the expenditures and it is possible by estimating the expenditures in advance. It should be tried to write down each expense in diary and then make a list of expenditures normally being done in life. The unfruitful or waste expenditures should be avoided by controlling the bad habits. The estimates of expenditures in each next month of the year should be noted down separately on a sheet showing the expected cash outflows. The expenditures may be divided into various categories like permanent monthly expenditures, occasional expenditures, and wasteful or unnecessary expenditures etc.

3.   Compare incomes and expenditures of each month: 

After pointing out incomes of each coming month in first step and expenditures of each coming month in second step; it is easy to compare the figures and chalk out expected surplus and deficits of each coming month of the year. The figures will tell the minimum surplus amount of each month. Suppose, a person is getting income of Rs. 60000 per month and his expenditures are nearly Rs. 30000 to 40000 per month; then he will become sure that he will have at least savings of Rs. 20000 per month. Similarly, each individual can compare the figures of incomes and expenditures and compute the minimum and maximum amount of expected savings in each month. There may be months in which it is expected to have more expenditures than incomes. For such months, he has to make provisions of savings in advance to avoid the situation of cash crisis.

4.   Planning investments or fruitful spending: 

After having comparative statement of incomes and expenditures, the surplus money can easily be managed either to set-off the months of deficit or to make investments for long-term. There are usually two options of investments in banks, post-offices, or other financial institutions i.e. Fixed Deposits or Recurring Deposits. The minimum savings of per month can be invested either in Fixed Deposit of long-term or Recurring Deposits as per the interest being offered. While deciding the option, one should also consider the tax-ability of the investments so that the take home salary can be increased. Like in India, the investments in Public Provident Fund (PPF) offers tax deduction and the interest is also offered reasonable. 

5.   Be Stick to Expenditures and control unfruitful expenses: 

After having everything in hand, one should become completely stick to control the unfruitful or waste expenditures. It depends upon the will power and everyone should try to restrict such expenditures to create more wealth in life. The expenditures on basic needs, should be made in smart way by getting benefits of sale, offers, and schemes being offered by the vendors; but keeping in mind the planned expenditures.

6.   Plan Entertainment and Joyful Activities: 

In case, there are surplus monies in each month and already enough savings are available; then one should plan to spend holidays, visit places of pilgrims or entertainment in hotels with family, and spend time in joyful activities. The surplus months can be planned to have such tours and travels in life and advance booking of tickets can further cut the expected expenditure on tour. One can take the membership of hotels and restaurants for long-term benefits being offered by them. 

7.   Use of Debit and Credit Cards: 

Everyone should avoid use of credit card, because it can lead to be extravagant and higher rate of interest is charged by the banks on credit cash used through the credit card. However, one should use debit card which gives facility to use own deposited money without imposing much charges. But the use of debit card should also be done is smart way. Keeping debit card in pocket and spending without any purpose is a bad habit and one should avoid it. Only fruitful and essential expenditures should be made wisely. If there are offers, sales, one should buy in bulk but not so much stock that cannot be used even in long-term. In order to curb such expenditures, one should invest expected surplus money in the first week of the month and then from remaining money in hand; make the estimated expenditures carefully.

8.   Plan long term expenditures out of matured amounts of Investments:

The investments are made for a specific purpose, the surplus amount deposited in Fixed Deposits or Recurring Deposits whenever matured should be spend only for further investments or long-term fruitful expenditures like marriage, starting new business, purchasing plots or vehicles as per the requirement.

9. Decision of investment in Fixed Deposits or Debt-oriented Funds:

In case of slowdown in the economy, when most of the central banks start to reduce the rate of interest on Fixed Deposits, people prefer to invest in debt-oriented funds. The investors also consider the fixed income securities such as Government securities (like Provident Fund investments), treasury bills, and corporate bonds etc. In Debt oriented funds, nominal charges are imposed for making investment i.e. Entry charges on each transaction. In Fixed Deposits, the return on investment is certain and can easily be computed but in case of Debt-oriented funds, either dividends are provided or profits are maintained by the corporate which led to appreciation in Net Asset Value (NAV) on which basis the value of Debt-oriented funds enhanced. 
One benefit of Debt-oriented funds in India, is that the income tax act provides exemption on tax if the sale proceeds of such investments are invested in a new residential house property subject to satisfaction of stipulated conditions.

Conclusion:

It is must to plan wisely to have bright future and get relaxed in long-term. One should further plan the old-age expenditures and retirement planning to stay healthy with sufficient money in his hands. It is fact that one person can easily gain more opportunities for earning money after getting more skills in his hand. The YouTube channels can be used for self education, online classes, and more. 

*Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

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