PensionIndia

Most of you if working for private companies must have an account with EPFO.

The government realizing the fact that a large number of private and public sector work force require some sort of retirement benefits launched the EMPLOYEES' PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952, which is a triple benefit scheme. As per amendment-dated 22.9.1997 in the Act, both the employees and employer contribute to this scheme at the rate of 12% of the basic wages, dearness allowance and retaining allowance, if any, payable to employees per month.

A private sector employee by subscribing to the above EPF scheme avails the following three benefits:

1. Provident Fund

The employee gets a lump sum amount on retirement. Employee contribution will be 12% of the salary & a matching contribution of 12% to be made by employer.However, 8.33% from the employer contribution of 12% will go to EPS 1995 and the balance will be credited in employee provident fund. Salary composition for EPF scheme : Basic + salary + cash value of concessional food + retaining allowance if any.Current rate of interest on EPF is 9.50% in 2010-2011.

2. . Employees pension scheme 1995

Employees’ Pension Scheme is Pension Scheme for survivors, old aged and disabled persons. Both the employer and the central govt. contribute for EPS,1995.The contribution to Pension scheme is @ 8.33% from employer.The central govt. also contributes @ 1.16% but up to the salary of Rs.6500/-.Example : If the salary of an employee is 10000 p.m and the contribution to EPS is limited to 6500, then the total contribution is 1200/-. A sum of Rs541 i.e. 8.33% out of 1200 will go to EPS & the rest amount and employees contribution of 12% goes to EPF.

The following types of pension are available under EPS, 1995 :

• Superannuating Pension : A pension is called superannuation pension if one has rendered eligible service of 20 yrs or more and retires on attaining the age of 58 years.
• Retirement pension :If one has rendered eligible service of 20 years or more and retires or otherwise ceases to be in the employment before attaining the age of 58 yrs.
• Short Service Pension : If one has rendered eligible service of 10 yrs or more but less then 20 yrs. Hence, the minimum eligible service required to get pension is 10 years

Following are the IT benefits on EPS 1995 :

• Commutation is tax free.
• Pension on death to family is tax free.
• Any sum paid by way of contribution towards an approved superannuation fund qualifies for sec 80 C.

For commuting your pension if you get gratuity then you get one third (1 / 3) of pension as commuted and if you get no gratuity then you can get one half ( 1 / 2 ) of the pension is commuted.

On death & permanent disability the following benefits are provided for the family:

• If a person has contributed even one month contribution and if he becomes permanently disabled then he is paid life time pension.
• Family pension i.e Spouse plus two children will gets pension up to death (until age 25 for boys and until girls marriage).
• If there are two widows then the eldest widow by date of marriage will get the right on pension.

3. Employees deposit linked insurance scheme

The objective of the scheme was to put in place a mechanism to provide employees families with income security after the death of the member. It was funded through contributions by the employer & central government with no contribution by the employee himself.

The cover is variable & it is based on his average balance in the Provident Fund account over a period of last 12 months. If the balance is up to Rs.35000/- then an equivalent amount of cover is provided. If the balance is above Rs.35000/- then Rs.35000/- plus one fourth of the excess over Rs.35000/- is provided. All benefit are subject to 60000/-(sixty thousand) max cover. Contribution to be paid only by the employer@Rs.0.50% of salary of an employee which is charged on the salary of up to 6500/-.
Since the life cover was so low in EDLI, the government has provided that against EDLI scheme an employer can approach a life insurance company for better cover to employees. In this case the CPFO exempts an employer from EDLI. This scheme is called group insurance scheme.

Harbinder S Mehra(Haru)