The employee provident fund, in simple terms, is when an individual retires from their job, there is a stop of a salary. Though the salary stops, the expenses do not, that is the cost of living and the expenses after a person retires. In order to ensure these expenses and have a life maintained just as how it was before, this fund comes forward. For all of this, an absolute retirement corpus is essential. This is where the employee provident fund comes to play.
The Employee Provident Fund (EPF) is a retirement savings plan that assists individuals in accumulating an adequate corpus. The Employees’ Provident Funds Act of 1952 established the scheme, which is now administered by the Employees’ Provident Fund Organisation (EPFO).
Per month, an individual would pay 12% of their basic salary to the fund under this program. This balance is matched by the boss, who contributes the same amount. When you retire, you will accept a lump sum payment that includes all your personal and company contributions, as well as interest. Since the EPF is managed by the Government of India and pays a fixed return, it is considered a low-risk fund.
Workers in companies with a minimum of 20 employees are required to have EPF accounts. EPF is often used by several businesses with less than 20 employees.
Employees with a payroll of $15,000 and more are also required to open an EPF account. However, most businesses have the facilities available to all workers, regardless of their pay. You can also quickly move the EPF corpus from one task to another. It is made possible by a system known as the Universal Account Number (UAN).
| Tax benefit | Apart from the fact that an employee’s payment to an EPF account is tax-deductible under Section 80C, the interest rate paid is also tax-free. And if an EPF account has been dead for more than three years, it continues to earn interest. Unless there has been a termination, EPF withdrawals are not payable until five years of continuous service. |
| Lifelong Assured Pension | While all employers and workers pay 12% of salaries to the Employees’ Pension Fund, 8.33% of the employer’s share is transferred to the Employees’ Pension Scheme (EPS). Under the Employees’ Pension Scheme 1995, 10 years of contributory membership guarantees a lifetime pension, according to the retirement fund agency. |
| Insurance | Then there are the incentives offered under the EPFO’s Employees Deposit Linked Insurance (EDLI) Scheme, which is a form of insurance. If the individual insured dies within the service period, the licensed nominee will collect a lump-sum payout. |
| Premature Withdrawal | Although EPFO firmly warns against using PF money as a bank account – after all, social security payments are only accrued where stability is sustained – the organization does encourage members to make partial withdrawals after 5-10 years of service for special needs such as medical care, home loan repayment, and unemployment. |
| High Returns | There’s also a chance that your PF account will earn more money in the future. The EPFO spends 5 to 15% of its investible deposits in exchange-traded funds (ETFs) (ETFs). The ETF shares, on the other hand, do not appear in members’ accounts, and they cannot raise the percentage of their retirement assets held insecurities.
Furthermore, government securities would account for 45-50 percent of the PF fund, debt instruments for 35-45 percent, and money market instruments and infrastructure trusts for 5% each. As a result, the annual return on PF savings is somewhat smaller than that of NPS, which has more aggressive investment opportunities. |
| Death | The accrued EPF fund balance is passed to the nominee in the event of the employee’s death, to assist the family in tough times. |
| Easy Access | Employees can access their PF account through the EPF member portal using their Universal Account Number (UAN). When they move occupations, they will switch their PF account. |
If previously said, both the boss and the employee contribute equally to the employee provident fund. The EPF donation number is determined using the employee’s minimum wage and dearness allowance. The PF contribution is usually 12 percent of the minimum wage for most workers. The below are the specifics of employee and company EPF contributions:
Per month, the company deducts 12 percent of the employee’s wages (basic + dearness allowance) as an EPF contribution. The total donation is deposited into the employee’s EPF account.
In the same way, the company pays 12% of the employee’s wages to the EPF. The employer’s share, on the other hand, is divided into the following sections.
The Indian government has made it mandatory for all businesses and organizations to make provident fund payments online. The internet transfer can be made via the EPFO website or any approved bank’s website, and the employer must either provide an account or use the same bank’s net banking service.
The Below Mentioned Banks have a Tie-up with EPFO to Make Online Provident Fund Payment