PROVIDENT FUND

What is PF?

If you have just started working as an employee at a corporate setup, you must have heard the EPF (Employees' Provident Fund) or simply PF. Is a popular savings scheme that has been introduced by EPFO (Employees' Provident Fund Organisation) under the supervision of the Government of India?

The savings scheme is directed toward the salaried class to facilitate their saving plans and help them build substantial retirement corpus to ensure financial security post their working tenure.

It is the major scheme of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. It has around 5 crore people from every business under their umbrella in which 20 or more people are employed and certain other businesses which are covered under particular conditions put by EPFO.

It is a monetary contribution made by both employee and employer each month. The employees have to pay 12% of their salary and an equal contribution is paid by the employer.

The fund thus built amasses a pre-fixed rate of interest that has been set by the Employees Provident Fund Organisation. The amassed interest on the EPF is tax-free and can be withdrawn without paying for the same. Employees avail a lump-sum amount on their retirement, which is inclusive of the amassed interest.

Eligibility -

The EPF scheme is open to all individuals working in public and private sectors, this means all employees can apply to become a member of EPF India.

In fact, if a company has at least 20 employees, it has to extend benefits EPF scheme to its employees. Other companies having less than 20 employees and falling under certain conditions given by EPFO also have to extend these benefits to its employees according to the guidelines.

An active member of the EPF scheme can avail of several benefits such as insurance benefits and pension benefits.

Benefits -

There are several benefits of the EPF scheme for a salaried person, along with providing a sense of financial security and stability it provides-

Capital appreciation: EPF India announces the rate of interest on PFs for every financial year, based on the interest rate interest is calculated on money held with EPF India and is deposited at the end of every financial year. Moreover, benefits continued till maturity ensures growth in the employees' funds and speeds up capital appreciation.

Safety pot for retirement: Not all of the employer's share ends up in the PF money deposit. Of the employer's contribution, 8.33% will be directed to the Employee Pension Scheme. In the long run, the total money deposited in the employee provident fund helps to build a healthy retirement pot.

Emergency Fund: The EPF schemes help provide backup during unwarranted situations faced by the employees. In case of medical emergencies, financial crisis, wedding expenses the employee can use the money in PF as a backup.

Tax benefits: Under the Indian Income Tax Act, an employee's contribution toward their PF account is deemed eligible for tax exemption. Earning generated through the EPF scheme is exempted from taxes. Such exemptions can be availed up to a limit of 1.5 Lakhs.

Author: Shweta Singh