Benefits of Employee Provident Fund (EPF)
Blog: Financial Wisdom
Employee Provident Fund (EPF) is an important tool of retirement planning. The tax-free interest and the maturity ensure good growth of your money. Both the employee and the employer contribute an equal amount towards savings that can be availed on retirement. As per the EPF Act, 12% of an employee’s basic salary is to be contributed towards the EPF. Out of the 12% employer’s contribution, 8.33% is contributed towards the Employees’ Pension Scheme (EPS) and the balance 3.67 percent is invested in EPF. Currently, the interest rate on EPF is 8.55% and this amount is credited to the account holder at the end of the financial year. EPF comes with several other benefits that one must be aware of:
1. Tax-free: The interest earned on your EPF account is tax-free. Plus, the withdrawals at the time of maturity are also tax-free. However, under the current tax rules, withdrawal of accumulated PF balance is taxable if the employee has not rendered continuous service for five years or more to the employer(s).
2. Insurance benefit: As per the Employee Deposit Linked Insurance (EDLI) scheme, in the absence of group life insurance, the employer must contribute to 0.5% of basic monthly pay (capped at Rs. 6500 per month) towards life insurance. For some, this may be peanuts but this amount is good enough for those who work in small enterprises and need money to support their family.
3. PF entitles for pension too: Out of the employer contribution of 12%, 8.33% goes towards EPS and rest goes toward to your provident fund account. The pension on retirement is linked to the average salary drawn in the year before retirement and number of years in service. This contribution helps you in building a corpus for your pension. To claim pension benefits, you should be 58 years of age and should have completed 10 years of service without any withdrawal. But there are certain provisions where you may still receive the pension before the age of 58 but a reduced amount.
4. Ease of access: With Aadhaar linked to UAN, transferring your employee provident fund (EPF) accounts while changing jobs has become easier. New joiners are no longer required to fill form 13 for EPF transfer claims after changing job. EPFO has introduced Form 11, a new composite form that will replace Form 13 in all cases of auto transfer.
5. Extra benefits: In case of urgent need of funds, EPF gives you an option to withdraw from the corpus but within a certain limit and by meeting some specified conditions.
- Unemployment: You can withdraw 75% of your provident fund if you have been unemployed for more than a month. Remaining 25% of the funds can be withdrawn if you have been employed for more than two months.
- Wedding: 50% of the PF contribution can be withdrawn for marriage purposes. Minimum 7 years of service is required to withdraw the amount.
- Medical purposes: There is no minimum service or lock-in period for withdrawal in case of medical emergencies. You can withdraw total corpus or six times the monthly salary (whichever is lower).
- Renovation and reconstruction of the house: You must complete at least 5 years of total service and the house should be held in your name or held jointly with the spouse. You can withdraw 12 times your monthly salary.
- Purchase or construction of the house: The property should be held jointly with a spouse or should be registered in your name. You can withdraw 24 times of the monthly salary and only after completing 5 years of service.
Related: Every Single Thing To Know About EPF
Hence, one of the easiest and safest investments to secure your future is EPF. You can earn a good interest along with several other benefits as mentioned above.