Navigating the maze that is personal finance

Sunday, 23 October 2016

Four ways to check your Employee Provident Fund (EPF) balance



You contribute 12% of your basic pay to EPF every month. Over the years this contribution can grow to be quite substantial. Here are four easy ways to keep a track of your EPF balance.

You need to know your UAN (Universal Account Number) in order to access details of your EPF balance. UAN is a unique number assigned to all members of the EPF.  The number does not change even if you switch jobs.

You can ask your employer to provide you the details of your UAN. Alternatively you can enter your EPF (this is typically mentioned in your salary slip) details on the page: http://uanmembers.epfoservices.in/check_uan_status.php

I entered my EPF account details on the page. Since my UAN is already activated I get the message indicating the same.


Once you know your UAN you need to activate your UAN based registration on the page: http://uanmembers.epfoservices.in/uan_reg_form.php

Once registered, you can access information about your EPF account using any of the following methods.

UAN portal 

Login with your UAN and password on http://uanmembers.epfoservices.in/


Then download your passbook.

 

Missed call service 
A free of cost service, give a missed call from your registered mobile number (as per your UAN records) to 011 2290 1406. Within minutes you will receive a SMS with the latest balance in your EPF account.

SMS service
This is a facility similar to the missed called facility. The SMS service facility is available in 10 languages including English, Hindi, Punjabi, Gujrati, Marathi, Kannada, Telugu, Tamil, Malyalam and Bengali.  The language of the SMS received depends on the first three characters of the preferred language.

So you will send the following SMS from your registered mobile number to 7738 299 899 to get your balance details in English: EPFOHO UAN ENG

EPFO mobile app (Google Android only) 
You can download the EPFO mobile app from the Google play store. This app allows you to view your balance, monthly contributions and other details from the comfort of your mobile phone. Click on the ‘Member’ button.


You then click on ‘Balance/Passbook’ button and enter your UAN ID and registered mobile number to get your details (your name, date of birth, AADHAR, PAN and other details) available with EPFO.   

 

You can then choose to ‘View Passbook’ in order to see the month on month contribution status. 
Know of any other ways to check your EPF balance online? Let me know.
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What you need to know about the Employee Provident Fund – EPF

When I started working my employer asked me to fill this form and started deducting a part of my salary towards EPF. Little did I know the long term financial implications of such a deduction. So I decided to prod a little deeper.

What is EPF?
  • It is a social security scheme run by Employees Provident Fund of India (EPFO) under the ministry of Labour and Employement. It is an investment made by saving a part of salary for use during contingencies or after retirement.
  • Every employee needs to submit Form 11 when he or she joins and organization covered under the EPF scheme of 1952. You can choose to opt for it at the start of your career. However, once you choose to invest, you cannot opt out. Under present rules, once activated your account would be active unless you change your job and your new organization is not be covered by EPF rules.
  • It is applicable to salaried persons; Mandatory for those earning basic salary up to 15000; Optional for those earning above it.
  • Applicable to organisations with 20 or more people under law.
The finer details
  • Both employee and employer contribute towards EPF. It has two main components. EPF (employee pension fund) and EPS (employee pension scheme- contribution capped at Rs. 1250@ 8.33 %of 15000, the rest goes to EPF if your basic is more than 15000).  See table.

  • Contribution by

    EPF

    EPS

    EDLI

    EPF
    Admin charges

    EDLI
    Admin Charges
    Employee
    12%

    0

    0

    0

    0
    Employer
    3.67%

    8.33%

    0.5%

    0.85%

    0.01%

  • You can contribute more than 12% of basic pay(+ Dearness Allowance DA if applicable) but your employer won't be matching this extra contribution.
  • Every year EPFO announces interest that would be earned on your account. EPFO has decided to reduce interest rate on the EPF to 8.65% from 8.8% a year earlier. The compounded interest is earned only on EPF part. Interest is calculated on opening balance at the beginning of a particular month but is added to your EPF balance at the end of the year.
  • The account is transferable when you shift jobs. You should provide your EPF's universal account number (UAN) number to your employer for further contributions.
  • You can now apply online for such transfers.
  • Some companies may run EPF private trusts that are recognized by EPFO. They work like EPF and manage their own employees money. Such employers are exempted from filing PF returns. That gives at least the same interest as EPF does.
  • As per the notification issued by the EPFO on Nov 11, 2016 an inoperative EPF account (an account lying dormant for more than 36 months) will now continue to accrue interest unless the concerned employee applies for withdrawal of the accumulated balance.
    unless the employee concerned applies for withdrawal of the accumulated balance in his EPF account

    unless the employee concerned applies for withdrawal of the accumulated balance in his EPF account

    unless the employee concerned applies for withdrawal of the accumulated balance in his EPF account

EPF returns and tax liability
  • Till now you earned an interest on your balance at fixed rate as declared by EPFO for each financial year.( they invest in debt and government securities). Last financial year a small part of money was invested in the stock markets.
  • The tax liability of EPF is EEE. That means that the amount invested, the interest earned and the maturity amount, all are tax exempt
    • E(employees contribution is exempt under 80C) (employers contribution is fully tax free) 
    • E(interest earned)
    • E(withdrawal or maturity)
      • Withdrawing before 5 years will nullify the tax benefit availed under 80C and employers contribution too would be calculated as income.
      • TDS will be cut on withdrawal from EPF if it is fine before 5 years of working life. However, no TDS will be cut for withdrawals up to 50,000. (However it is taxable).
When can you withdraw the EPF amount
  • Whole corpus cannot be withdrawn under new rules under any circumstance before retirement.
  • The maximum you can withdraw is your contribution and interest. ( Employers contribution part can be withdrawn only after retirement)
  • If you are jobless for at least two months (form 19) then you could withdraw the corpus earlier (full) but now full corpus cannot be withdrawn. You can withdraw partial amount mentioned above.
  • EPF cannot be withdrawn before 5 years of completed service except on special occasions such as -   
    • education, marriage, illness of dependents (6 times the salary);
    • 50% corpus can be withdrawn up to 3 times after 7 years of completion;
    • prepaying home loan or repairing horse after completing 10 years of service (up to 36 times the salary);
    • altering house after 5 years of completion
  • Immediate withdrawals (without waiting for a period of two months) are allowed
    • if you have landed a job  abroad.
    • female employee getting married with adequate proof.
  • 90% of the accumulated corpus can be withdrawn on attaining 57 yrs of age.

EPS
  • This part of your employer's contribution gets you pension-
  • on completion of 20 years of service (superannuation at 58 or just ceasing to work)
  • Short service pension to those who have worked for more than 10yrs but less than 20yrs.
  • You receive monthly pension only after completing 10 years in service and attaining age of 58.
  • Pension under scheme varies between Rs. 1000 to Rs.7500.
  • Those who started job after 1 Sep 2014 and earning more than Rs.15,000 in basic and DA will not be contributing to the EPS or Pension scheme.

EDLIS
  • It is a lumpsum payment to nominated beneficiary in event of death of employee due to natural causes, illness or accident (while working).
  • It is computed as 30 times the last basic salary drawn) (capped at Rs.15000) and 1.5 lakh as bonus so maximum is 6 lakh.

EPF app and online account
  • Government has developed an app for EPF For  employees and employees. Going digital has made it easier for both to handle EPF related activities. Employee can use it for balance enquiry, transfer, withdrawal. In my next blog, I will tell you 4 easy ways to keep a tab on your PF balance.
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Sunday, 16 October 2016

Save lakhs on your home loan by prepaying (and calculator to see what you can save)

There is a perpetual dilemma with those servicing a home loan; whether to prepay or not. I was once in the same category. So I have created an excel calculator to show the impact that prepayment can have on:  savings on the interest payment and the income tax deductions.

The file has 3 main sections:

1.    The data entry section:

This is where you enter the loan details including the loan amount, interest payable, tax slab (10%, 20% or 30%) that you fall in and the loan start date.


2.    The calculations:

In this section you will find a month wise breakup of the interest and principal that would form that month’s EMI. You can enter the amount you would prepay in a particular month and the calculations will change accordingly.



3.    The loan summary:

In this section you will find the loan details including the total interest paid, tax savings if any (I have assumed that you would save up to Rs. 1.5 Lakhs under section 80C and up to Rs. 2 Lakhs under section 24 of the Income Tax Act. 


In the example given above you see that that a Rs. 20 Lakhs loan for a 20 year period will result in an EMI of Rs. 19,500. You will have to pay an interest of around Rs. 26 Lakhs over the 20 year period and can save around Rs. 13 Lakhs assuming that the current incentives on offer by the Income Tax department will continue into the future.

The most important thing that the file helps you with is that you can figure out what you can save in interest if you prepay your loan. Prepaying also doesn't mean that you are getting rid of the whole loan amount at one go. Most of the times that won't be the case (unless you have windfall gains). It just means that you are reducing your liability, one step at a time.

If you see section 2 of the excel file you will notice that the initial years of paying EMI goes towards paying the interest amount. That's why for first 2 to 3 years, the payment towards your principal may just be a couple of thousands while you have paid couple of lakhs in EMI.

What does that mean? The earlier you prepay in the tenure the more you save on the interest. Prepaying in the latter part of your tenure actually doesn't save much.  (Refer to the calculations in the excel sheet).

In conclusion

This excel sheet gives you an indication of the financial implications of prepaying your home loan. Do not forget that you will need to ensure that you have the required liquidity to meet any other financial commitments before you decide to prepay your loan. Lastly, I have used a number of assumptions in the home loan prepayment calculator.  So do take advise of your chartered accountant prior to taking action on the data contained in file.

You can download the calculator here.

---

I found an interesting book "Buy a house without a home loan". It is an interesting read. Take a look for yourselves.

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Monday, 3 October 2016

Your definitive guide to e-Insurance (eIA)

Electronic insurance or e-insurance (eIA) accounts have become mandatory since 1st October 2016. You need to have an account if you want to buy insurance from now on.

What is an e-Insurance account?

According to the IRDAI (Insurance Regulatory and Development Authority of India) “e-Insurance account is the portfolio of insurance policies of a policyholder held in an electronic form with an insurance repository.”

Hitherto insurance policies were made available in physical mode only. eIA allows for purchase of insurance in dematerialized or demat form.

Which insurance policies require an e-Insurance account?

If you are wondering what type of insurance policies need to stored electronically, take a look at the table below. I have sourced it from the IRDAI notification F.NO.IRDAI/REG/16/128/2016, DATED 13-6-2016. You can find the detailed notification here

Type of insurance
Sum Insured (equal to or exceeding) (in Rs.)
Single/Annual Premium
(equal to or exceeding)
Pure term (excluding term with ROP*)
10,00,000/-
10,000/-
Other than Pure term (including term with ROP*)
1,00,000/-
10,000/-
Pension policies
NA
10,000/-
Immediate Annuities
(Pension p.a.)
NA
10,000/-
All retail General Insurance policies except Motor
10,00,000/-
5,000/-
Individual Health
5,00,000/-
10,000/-
Motor Retail
All policies
All policies
Individual Personal Accident & Domestic Travel
10,00,000/-
5,000/-
Individual Travel Insurance (Overseas)
All policies

* ROP (Return of premium life insurance) is a type of term life insurance policy that returns the premiums paid for coverage if the insured party survives the policy's term.

How to open an e-Insurance account?

You need to choose one of the five authorized insurance repository which are authorized by IRDAI to for maintaining data of insurance policies in electronic form on behalf of Insurers. You can buy and keep  all  your  policies  with any one of the following repository. Before selecting your repository do not forget to contact your insurance provider to check if they have already partnered with a particular repository.
1.    NSDL Database Management Limited  
2.    Central Insurance Repository Limited
3.    SHCIL Projects Limited 
4.    Karvy Insurance Repository Limited  
5.    CAMS Repository Services Limited

You need to download/fill the account opening form from the website of the repository or the insurer. The filled form should then be submitted  along with a photo ID, recent passport size photograph,  cancelled cheque ( In case of ECS/NEFT services for insurance premium payment transaction) and address proof    to  the  office  of  Insurance  Repository  or  insurance  company  or  authorized  Approved  Person**  (AP)  appointed  by  Insurance  Repository (IR).

** An Approved Person is a Point of Sale (PoS) appointed by Insurance Repository and will be working on behalf of Insurance Repository to extend the IR services.

The AP/insurer will verify the KYC documents and process the application. Post that the Insurance Repository will open the account and send the ID and password via text and e-mail to you.








One thing to note is that you do not have to pay in order to create and operate an e-Insurance account. It is provided free of charge. Another important rule is that you can only open one e-Insurance account at a time, you cannot have multiple e-Insurance accounts.

You can download this file available on the IRDAI website in case you have more questions.
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